Chapter 10
Summary

achine tool and jet engine technologies are priority acquisition
targets for the PRC. This chapter presents two case studies
relating to the PRC's priority efforts to obtain such technology
- its 1994 purchase of machine tools from McDonnell Douglas,
and its efforts in the late 1980s and early 1990s to obtain jet
engine technology from Allied Signal's Garrett Engine Division.

McDonnell Douglas Machine
Tools

In 1993, China National Aero-Technology Import and Export
Corporation (CATIC) agreed to purchase a number of excess machine
tools and other equipment from McDonnell Douglas, including 19
machine tools that required individual validated licenses to
be exported. CATIC told McDonnell Douglas it was purchasing
the machine tools to produce parts for the Trunkliner Program,
a 1992 agreement between McDonnell Douglas and CATIC to build
40 MD-82 and MD-90 series commercial aircraft in the PRC.

During the interagency licensing process for the machine
tools, the Defense Technology Security Administration sought
assessments from the Central Intelligence Agency and from the
Defense Intelligence Agency, because of concerns that the PRC
could use the McDonnell Douglas five-axis machine tools for unauthorized
purposes, particularly to develop quieter submarines. Since
the PRC wishes to enhance its power projection capabilities and
is making efforts to strengthen its naval forces, the five-axis
machine tools could easily be diverted for projects that would
achieve that goal.

Initially, CATIC told McDonnell Douglas it planned to sell
the machine tools to four factories in the PRC that were involved
in the Trunkliner commercial aircraft program. When those
efforts reportedly failed, CATIC told McDonnell Douglas it planned
to use the machine tools at a machining center to be built in
Beijing to produce Trunkliner parts for the four factories.

In May 1994, McDonnell Douglas applied to the Commerce
Department for licenses to export the 19 machine tools to the
PRC. Even after it became apparent that only 20 of the 40
Trunkliner aircraft would be built in the PRC, the U.S. Government
continued to accept McDonnell Douglas's assertion that the machine
tools were still required to support the Trunkliner production
requirements. Accordingly, Commerce approved the license applications
in September 1994 with a number of conditions designed to limit
the risk of diversion or misuse.

In April 1995, the U.S. Government learned from McDonnell
Douglas that six of the licensed machine tools had been diverted
to a factory in Nanchang known to manufacture military aircraft
and cruise missile components, as well as commercial products.
However, Commerce's Office of Export Enforcement (OEE) did not
initiate an investigation of the diversion for six months.

The Commerce Department declined an Office of Export Enforcement
Los Angeles Field Office request for a Temporary Denial Order
against CATIC. The case remains under investigation by OEE and
the U.S. Customs Service. With the approval of the U.S. Government,
the machine tools have since been consolidated at a factory in
Shanghai.

Garrett Engines

The PRC has obtained U.S. jet engine technology through
diversions of engines from commercial end uses, by direct purchase,
and through joint ventures. Although the United States has
generally sought to restrict the most militarily sensitive jet
engine technologies and equipment, the PRC has reportedly acquired
such technologies and equipment through surreptitious means.

Prior to 1991, Garrett jet engines had been exported to
the PRC under individual validated licenses that included
certain conditions to protect U.S. national security. These conditions
were intended to impede any attempt by the PRC to advance its
capability to develop jet engines for military aircraft and cruise
missiles.

The 1991 decision by the Commerce Department to decontrol
Garrett jet engines ensured that they could be exported to the
PRC without an individual validated license or U.S. Government
review. In 1992, the Defense Department learned of negotiations
between Allied Signal's Garrett Engine Division and PRC officials
for a co-production deal that prompted an interagency review
of Commerce's earlier decision. The interagency review raised
a number of questions regarding the methodology Commerce had
followed in its decision to decontrol the Garrett jet engines.

The PRC continues its efforts to acquire U.S. jet engine
production technology. The PRC may have also benefited from
the direct exploitation of specially designed U.S. cruise missile
engines. According to published reports, the PRC examined a U.S.
Tomahawk cruise missile that had been fired at a target in Afghanistan
in 1998, but crashed en route in Pakistan.

Chapter 10
Text

he People's Republic of China's long-term goal is to become
a leading power in East Asia and, eventually, one of the world's
great powers. To achieve these aims, the PRC will probably enhance
its military capabilities to ensure that it will prevail in regional
wars and deter any global strategic threat to its security.1

From the PRC's perspective, the 1991 Gulf War was a watershed
event in which U.S. weapons and tactics proved decisive. The
war provided a window on future warfare as well as a benchmark
for the PRC's armed forces.2

After the Gulf War, senior PRC military leaders began speaking
of the need to fight future, limited wars "under high-tech
conditions." 3 Senior PRC political leaders support the
military's new agenda.4

In a 1996 speech, Li Peng, second-ranking member of the Politburo,
then-Prime Minister, and currently Chairman of the National People's
Congress, said:

We should attach great importance to strengthening the
army through technology, enhance research in defense-related
science, . . . give priority to developing arms needed for defense
under high-tech conditions, and lay stress on developing new
types of weapons.5

Senior PRC leaders recognize that enormous efforts must be
made to "catch up" militarily with the West.6 According
to the Defense Intelligence Agency, the PRC's ability to achieve
this goal depends in part on its "industrial capacity to
produce advanced weapons without foreign technical assistance."
7

Two technologies
that have been identified as priority acquisition targets for
the PRC are machine tools for civil and military requirements,
and jet engine technology.8 This chapter presents two case
studies relating to the PRC's efforts to obtain such technologies
- its 1994 purchase of machine tools from McDonnell Douglas,
and its efforts in the late 1980s and early 1990s to obtain jet
engine technology from Allied Signal's Garrett Engine Division.

These case studies illustrate the methods the PRC has used
to acquire militarily-sensitive technologies through its skillful
interaction with U.S. Government and commercial entities.

However, the case studies do not assess the degree to which
the PRC has enhanced its aerospace and military industrial capabilities
through the acquisition of U.S. technologies and equipment.

A third technology priority for the PRC - composite materials
- is discussed in the Technical Afterword to this chapter.

PRC Targeting of Advanced Machine
Tools

The PRC is committed to the acquisition of Western machine
tool technology, and the advanced computer controls that provide
the foundation for an advanced aerospace industry.

Although the PRC acquires machine tools from foreign sources
in connection with commercial ventures, it also seeks foreign-made
machine tools on a case-by-case basis to support its military
armament programs.

Moreover, the proliferation of joint ventures and other commercial
endeavors that involve the transfer or sale of machine tools
to the PRC makes it more difficult for foreign governments and
private industry to distinguish between civilian and military
end-uses of the equipment.

The China National
Aero-Technology Import-Export Corporation's (CATIC) purchase
of used machine tools from McDonnell Douglas, now part of
Boeing, is one illustration of the complexities and uncertainties
faced by private industry and the U.S. Government in these endeavors.

Traditional machine tools cut, bend, and shape metals and
non-metal materials to manufacture the components and structures
of other machines. Machine tools form the foundation of modern
industrial economies, and are widely used in the aerospace and
defense industries.

The capability of machine tools is typically indicated by
the number of linear or rotational motions - of either the tool
or the workpiece - that can be continuously controlled during
the machining process, and by the machining accuracy that can
be achieved. The latter is measured in microns, that is, millionths
of a meter.

Advanced machine tools can provide five axes of motion - typically
horizontal, lateral, and vertical movement, and rotation on two
perpendicular axes. Less widely used or required are six- and
seven-axis machines, which are sometimes used for special applications.

Machine tools used in aircraft and defense manufacturing today
are generally numerically controlled (NC). More advanced equipment
is computer numerically controlled (CNC). CNC machine tools are
essential to batch production of components for modern weapon
systems, and can reduce machining times for complex parts by
up to 90 percent compared to conventional machine tools.

In addition, these modern machines require operators with
less skill and experience and, when combined with computer-aided
design software, can reduce the manufacturing cycle of a product,
from concept to production, from months to days.

Machine tools are
essential to commercial industry, and high precision, multiple-axis
machine tools broaden the range of design solutions for weapon
components and structural assemblies. Parts and structures
can be designed with advantages in weight and cost relative to
what could be achieved with less advanced machine tools. For
military and aerospace applications, the level of manufacturing
technology possessed by a country directly affects the level
of military hardware that can be produced, and the cost and reliability
of the hardware.9

The military/civilian dual-use production capability of various
types of machine tools is indicated in the following table.

Export
Controls on Machine Tools

The PRC's access to foreign multi-axis machine tools and controllers
has increased rapidly with liberalized international export controls.10

During the Cold War, the Coordinating Committee for Multilateral
Export Controls (COCOM) established multilateral controls on
exports to the Warsaw Pact allies and the PRC of machine tools
that restricted linear positioning accuracy below 10 microns.11
However, the consensus for relatively strict export controls
dissolved after the Soviet Union's collapse.

The post-Cold War control regime is embodied in the 1996 Wassenaar
Arrangement, and the 1978 Nuclear Suppliers Group Agreement (NSG)
governing the export of machine tools that can be used for nuclear
weapons development. This current regime has a different focus,
as indicated in the following table.

The Wassenaar and Nuclear Suppliers Group Agreement regimes
have adopted similar control parameters for machine tools. Generally
speaking, lathes and milling machines must be licensed for export
if their accuracy exceeds six microns. Grinding machines are
controlled at four microns. The Wassenaar Arrangement controls
all machine tools capable of simultaneous, five-axis motion,
regardless of machining accuracy. The Nuclear Suppliers Group
Agreement exempts certain machines from this restriction.12

The PRC is not a proscribed destination for machine tools
and other commodities under the Wassenaar Arrangement. This means
that Wassenaar regime members treat exports to the PRC according
to their individual national discretion. On the other hand, exports
to the PRC of Nuclear Suppliers Group Agreement-covered items
require individual validated licenses.13

Export
Administration Regulations

The Wassenaar and Nuclear Suppliers Group Agreement parameters
for machine tool controls have been incorporated in the U.S.
Commerce Department's Commodity Control List of dual-use items
(the list appears in the Export Administration Regulations).14
Machine tools are listed under Category 2 (Material Processing),
Group B (Inspection and Production Equipment).15

The Commodity Control List further classifies machine tools
- as it does other dual-use items - by an Export Control Classification
Number that reflects the item's category, group, types of associated
controls, whether the item is controlled for unilateral or multilateral
concerns, and a sequencing number to differentiate among items
on the Commodity Control List.16

The
PRC's Machine Tool Capabilities and Foreign Acquisitions

Observers of the PRC's machine tool capabilities do not believe
that the PRC can indigenously produce high precision, five-axis
machines that approach the quality of Western products.

The U.S. General Accounting Office estimates that the PRC
has the capability "to manufacture less sophisticated machine
tools, but cannot currently mass produce four- and five-axis
machine tools that meet Western standards." 17

According to a 1996 Defense Department assessment, however,
the PRC's indigenous machine tool production capability is increasing
markedly.18

The PRC has long sought to compensate for its deficiencies
in machine tool technology by importing foreign systems. This
approach has been facilitated by COCOM's dissolution and the
resulting international relaxation of controls on machine tool
exports.

Since the end of
COCOM in March 1994, PRC military industries have acquired advanced
machine tools that would be useful for the production of rocket
and missile guidance components, and several five-axis machines
for fighter aircraft and parts production. Five-axis machines
were controlled under COCOM and are purportedly controlled by
Wassenaar.19 U.S. industry sources note that:

China has proved able to buy [machine tools] from a variety
of foreign makers in Japan and Europe. Between 1993 and 1996,
fifteen large, 5-axis machine tools were purchased by Chinese
end users - all fifteen were made by Western European manufacturers.

Furthermore, Shenyang Aircraft purchased twelve 5-axis
machine tools [in 1997]. These machine tools came from Italian,
German and French factories.20

In addition, the PRC may be enhancing its ability to produce
advanced machine tools through license production arrangements
with Western manufacturers.

Other countries
developing nuclear weapons and missiles have also apparently
benefited from the PRC's ability to acquire advanced machine
tools on the world market. As one recent Defense Department assessment
noted, the PRC's "recent aerospace industry buildup and
its history of weapons trade with nations under Western embargoes
makes this increase in key defense capacity of great concern."
21

The Clinton administration has determined that specific examples
of this activity cannot be publicly disclosed without affecting
national security.

CASE STUDY: McDonnell Douglas
Machine Tools

Findings
of the U.S. General Accounting Office

The Select Committee has determined that the U.S. Government
is generally unaware of the extent to which the PRC has acquired
machine tools for commercial applications and then diverted them
to military end uses.

he McDonnell Douglas case illustrates that the PRC will attempt
diversions when it suits its interests.

At the request of Congress, the U.S. General Accounting Office
in March 1996 initiated a review of the facts and circumstances
pertaining to the 1994 sale of McDonnell Douglas machine tools
to CATIC. The GAO issued its report on November 19, 1996.

The report can be summarized as follows:

· In 1992,
McDonnell Douglas and China National Aero-Technology Import and
Export Corporation (CATIC) agreed to co-produce 20 MD-82 and
20 MD-90 commercial aircraft in the PRC. Known as the Trunkliner
Program, the aircraft were to serve the PRC's domestic "trunk"
routes. In late 1994, a contract revision reduced the number
of aircraft to be built in the PRC to 20, and added the purchase
of 20 U.S.-built aircraft.

· CATIC is
the principal purchasing arm of the PRC's military as well
as many commercial aviation entities. Four PRC factories, under
the direction of Aviation Industries Corporation of China (AVIC)
and CATIC, were to be involved in the Trunkliner Program.

· In late
1993, CATIC agreed to purchase machine tools and other equipment
from a McDonnell Douglas plant in Columbus, Ohio that was
closing. The plant had produced parts for the C-17 transport,
the B-1 bomber, and the Peacekeeper missile. CATIC also purchased
four additional machine tools from McDonnell Douglas that were
located at Monitor Aerospace Corporation in Amityville, New York,
a McDonnell Douglas subcontractor.

· The machine
tools were purchased by CATIC for use at the CATIC Machining
Center in Beijing - a PRC-owned facility that had yet to be built
- and were to be wholly dedicated to the production of Trunkliner
aircraft and related work. McDonnell Douglas informed the U.S.
Government that CATIC would begin construction of the machining
center in October 1994, with production to commence in December
1995.

· In May
1994, McDonnell Douglas submitted license applications for exporting
the machine tools to the PRC and asked that the Commerce Department
approve the applications quickly so that it could export
the machine tools to the PRC, where they could be stored at CATIC's
expense until the machining facility was completed. Following
a lengthy interagency review, the Commerce Department approved
the license applications on September 14, 1994, with numerous
conditions designed to mitigate the risk of diversion.

· During
the review period, concerns were raised about the possible diversion
of the equipment to support PRC military production, the
reliability of the end user, and the capabilities of the equipment
being exported. The Departments of Commerce, State, Energy, and
Defense, and the Arms Control and Disarmament Agency, agreed
on the final decision to approve these applications.

· Six of
the machine tools were subsequently diverted to Nanchang Aircraft
Company, a PRC facility engaged in military and civilian production
over 800 miles south of Beijing. This diversion was contrary
to key conditions in the licenses, which required the equipment
to be used for the Trunkliner program and to be stored in one
location until the CATIC Machining Center was built.

· Six weeks
after the reported diversion, the Commerce Department suspended
licenses for the four machine tools at Monitor Aerospace in New
York that had not yet been shipped to the PRC. Commerce subsequently
denied McDonnell Douglas's request to allow the diverted machine
tools to remain in the unauthorized location for use in civilian
production. The Commerce Department approved the transfer of
the machine tools to Shanghai Aviation Industrial Corporation,
a facility responsible for final assembly of Trunkliner aircraft.
The diverted equipment was relocated to that facility before
it could be misused.

· The Commerce
Department did not formally investigate the export control violations
until six months after they were first reported. The U.S.
Customs Service and the Commerce Department's Office of Export
Enforcement are now conducting a criminal investigation under
the direction of the Department of Justice.22

The
U.S. Government's Actions
in Approving the Export Licenses

On December 23, 1993, the China National Aero-Technology Import
and Export Corporation (CATIC) reached an agreement to purchase
machine tools from McDonnell Douglas. CATIC officials signed
the purchase agreement with McDonnell Douglas on February 15,
1994.

We received 23 applications covering all of the material
involved in this project two days ago. [McDonnell Douglas] plans
on shipping to CATIC.

We have a long history with CATIC, which has been the consignee
on numerous occasions - approved and denied based on licensing
policies in effect at the time. CATIC was also the entity that
attempted to buy the Machine Tool plant in the Northwest that
was "denied" under the CFIUS process.

. . . .

Because of the sensitivity of this case, I think we should
get it
to the ACEP [Advisory Committee for Export Policy] ASAP. We are
going to suggest to the other agencies that we forgo the 60-90
[day] review process and, instead, bring together all the relevant
experts in a special [Operating Committee] meeting in 2-3 weeks
to make a recommendation.

If it is not agreed to approve the transaction at that
point (and it won't be),
we'll get the issue before the next ACEP.

Stay tuned. 23

Subsequently, according to a June 8, 1994 memorandum to Deputy
Assistant Secretary of Defense for Counterproliferation Policy
Dr. Mitchel Wallerstein from Acting Director of the Defense Technology
Security Administration Peter Sullivan:

An interagency meeting was held 7 June 1994. Defense, State
and Commerce were in attendance; Energy and CIA were invited
but did not attend.

McDonnell Douglas representatives outlined their proposal.
They would like closure on their license applications by 5 July
1994.

The possibility of meeting that request seems remote. First,
initial staffing within DoD was accomplished 7 June 1994, when
we received the required documentation from Commerce. Second,
all parties agree that the prospects for escalation within the
[U.S. Government] seem high, due to the scope of the proposed
program, and the precedence [sic] it may establish. We will keep
you informed of additional developments.24

Within the Defense
Department, the McDonnell Douglas license applications were a
cause of concern and internal debate. Specifically, the uniformed
military services (Joint Staff) initially recommended denial.

The Joint Staff based its recommendation of denial upon an
analysis indicating a high probability that this technology would
be diverted for PLA end use.25 Moreover, the Joint Staff noted
that, "Even with DoD recommending approval with conditions,
this would be a less-than-prudent export to the PRC. This is
particularly true in light of Chinese involvement in the world
arms market."

The Staff of the U.S. Commander in Chief, U.S. Pacific Command,
agreed, noting in an August 1, 1994 memorandum to the Joint Staff
that it "concurs with the Joint Staff position to deny"

The Licensing Officer at the Defense Technology Security Administration
who was initially assigned responsibility for the McDonnell Douglas
license applications also recommended denial. The Licensing Officer
reiterated concerns as to CATIC's role in both civilian and military
production, and stated that "[n]o quantitative data has
been supplied by the exporter, which establishes a clear need
for this equipment in China [the PRC]."

Intelligence Community Assessments
Because of concerns that the McDonnell Douglas machine tools
would give the PRC manufacturing production capabilities in excess
of what was required for the Trunkliner Program, the Department
of Defense asked for information that would assist it in determining
whether these machine tools could be diverted to production of
PLA military aircraft.

A July 27, 1994 Defense Intelligence Agency response to a
request from the Defense Technology Security Administration provided
an assessment.26 It warned that, while similar machine tools
were available from foreign sources, there was a significant
risk of diversion. There was also the additional risk that the
PRC could reverse-engineer the machine tools, and then use them
in other commercial or military production. This would be consistent
with the PRC's practice of reverse-engineering other Western
technology for military purposes.

On August 9, 1994,
the Defense Intelligence Agency provided a supplemental report
explaining the results of its thorough assessment of the applicability
of the McDonnell Douglas machine tools to three known PLA fighter
aircraft programs, each of which incorporated stealth technologies.
The report concluded:

The establishment of an advanced machine tool facility presents
a unique opportunity for Chinese military aerospace facilities
to access advanced equipment which otherwise might be denied.

Similarly, placing these machine tools in one facility
would reduce the financial outlay needed to acquire duplicate
advanced machine tools for multiple military aircraft programs.

DIA . . . maintain[s] that the production capacity resulting
from the McDonnell Douglas sale is above and beyond the requirement
necessary for exclusive production of 20 MD-82 and 20 MD-90 McDonnell
Douglas [aircraft], which is the stated end use in the export
license application.

In fact, recent press reporting indicates China [the PRC]
has dropped plans to build 20 MD-82s and will limit future production
to just 20 MD-90 aircraft.27

The Defense Technology Security Administration had received
information from informants in September 1993 - prior to CATIC's
agreement to purchase the machine tools, and a full year before
the license was granted - that CATIC personnel had visited McDonnell
Douglas's Columbus, Ohio plant and videotaped the machine tools
in use, a potentially illegal technology transfer.

The Defense Technology Security Administration reported the
information to the U.S. Customs Service, and its agents later
paid a visit to the Columbus, Ohio plant. However, following
the visit, the U.S. Customs Service determined that no further
investigative action was warranted.

During the interagency licensing process for the machine tools,
the Defense Technology Security Administration also sought assessments
from the Central Intelligence Agency and from the Defense Intelligence
Agency, because of concerns that the PRC could use the McDonnell
Douglas five-axis machine tools for unauthorized purposes, particularly
to develop quieter submarines. Since the PRC wishes to enhance
its power projection capabilities and is making efforts to strengthen
its naval forces, the five-axis machine tools could easily be
diverted for projects that would achieve that goal.

The Defense Technology
Security Administration received additional information from
informants indicating that CATIC had provided the Shenyang Aircraft
Factory, an unauthorized location, with a list of the Columbus,
Ohio equipment that had been purchased from McDonnell Douglas.28
Circles around some of the items on the list, according to the
translation of a note from Shenyang that accompanied the list,
indicated that the Shenyang Aircraft Factory was interested in
obtaining those items from CATIC.

The Shenyang list was reportedly obtained from the discarded
trash at a CATIC subsidiary in California.

This list was viewed as proof that CATIC intended to divert
the machine tools to unauthorized locations. These concerns were
reported to the U.S. Customs Service in the summer of 1994.

Changes to the Trunkliner
Program
When McDonnell Douglas applied for export licenses on May 26,
1994, the applications noted that the machine tools would be
used by the Beijing CATIC Machining Center primarily for the
Trunkliner program. According to those license applications,
McDonnell Douglas had a contract with CATIC to co-produce 20
MD-82 and 20 MD-90 aircraft.29

In June 1994, McDonnell Douglas representatives provided a
series of briefings to officials from the Commerce, State, and
Defense Departments regarding the nature of the Trunkliner program
and McDonnell Douglas's other activities in the PRC.30 In July
1994, however, Flight International magazine announced that the
Trunkliner Program had been significantly changed.31

Instead of co-producing 20 MD-82 and 20 MD-90 aircraft in
the PRC, only 20 MD-90 aircraft would be built there. Although
the PRC would still acquire 20 additional aircraft, those would
now be built at McDonnell Douglas's Long Beach, California plant
- albeit with many parts that were to be fabricated in the PRC.

Prompted by the
press reports, the Defense Department sought additional information
from McDonnell Douglas in late July and early August 1994 regarding
how the machine tools would be employed if the number of aircraft
to be co-produced in the PRC was to be reduced.32

In letters to the Defense Technology Security Administration
dated August 8 and August 12, 1994, McDonnell Douglas provided
further clarification regarding the number and complexity of
the parts that were to be manufactured in the PRC.

Commerce Department Licensing Officer Christiansen recalls
that Commerce was not concerned that the number of aircraft to
be co-produced in the PRC might be reduced, since parts for the
aircraft would continue to be fabricated in the PRC.33

The Defense Technology Security Administration and the Defense
Department, on the other hand, were concerned since they thought
the machine tools might represent significant excess manufacturing
capacity that the PRC might be tempted to divert to other, unauthorized
uses.

The actual agreement that reduced the number of aircraft to
be assembled in the PRC was signed on November 4, 1994.34

Discussions in the Advisory
Committee for Export Policy
The McDonnell Douglas export license applications were discussed
at the June 24, 1994 meeting of the Advisory Committee for Export
Policy (ACEP).

According to the minutes of that meeting, no decision was
reached. The Defense Department representative at the meeting
advised against approving the licenses that day, because internal
Defense Department review was continuing. The Defense Department
believed the applications could be approved if reasonable safeguards
were put into place to prevent the machine tools from being used
for unauthorized purposes.35

Among the other agencies in attendance, the State Department
agreed with the Defense Department that further review was required.
The Department of Energy deferred to the Defense Department on
whether licenses should be approved.36

The license applications for the McDonnell Douglas machine
tools were again discussed at a meeting of the Advisory Committee
for Export Policy on July 28, 1994. Again, the matter was deferred
until the next Advisory Committee meeting. The minutes reflect
that "a final decision on this transaction would have to
be remanded until the next meeting of the ACEP, or as soon as
possible before that date, if all the agencies complete their
reviews earlier."

According to the ACEP minutes, the respective positions of
each agency on the applications were as follows:37

· [The Department
of Defense] said that, if it had to vote at that time, it would
recommend denial of the licenses because of concerns that
the machine tools would be diverted. Moreover, there were concerns
that the McDonnell Douglas machine tools would give the PRC excess
production capacity, thus allowing other machine tools in its
inventory to be diverted from civilian to military production.

· [The Department
of] Energy indicated that, without further review, "it would
have to defer to Defense in denying this transaction and the
underlying applications."

· [The Department
of] State recommended approval, provided that appropriate
safeguards and conditions could be formulated to minimize the
risk of diversion.

· [The] Arms
Control and Disarmament Agency agreed with DOD [the Defense Department]'s
position, noting that it would recommend denial of the license
applications should it have to vote at that time.

The License Is Issued
The Advisory Committee member agencies later agreed to issue
the export licenses with 14 conditions.38

Those conditions required, among other things, that:

· The machine
tools were to be stored in one location pending completion of
the Beijing CATIC Machining Center

· McDonnell
Douglas was to provide quarterly reports to the Department of
Commerce and the Defense Technology Security Administration should
the Beijing CATIC Machining Center not be completed when the
machine tools arrived39

As a final part of the licensing process, a Department of
State cable was sent to the U.S. Embassy/Beijing on August 29,
1994 requesting that a senior CATIC official provide a written
end use assurance that the machine tools would only be used for
specified purposes.40

In a September 13, 1994 response, the U.S. Embassy/Beijing
reported that it had obtained the assurance from CATIC Deputy
Director Sun Deqing. However, the cable also noted that Deqing
had indicated to the embassy officials that:

CATIC plans to establish several specialized factories
under their new CATIC Machinery Company, and that [the CATIC
Machining Center] would be one of those plants. [The CATIC Machining
Center] will be established either near Beijing . . . or in Shijianzhuang
at the Hongxing Aircraft Company . . .41

McDonnell
Douglas's Plans

McDonnell Douglas's Limited
Role at the Machining Center
Although McDonnell Douglas was planning to place up to four of
its employees at the Beijing CATIC Machining Center, this was
not to occur until late 1995 at the earliest.

Moreover, the Machining Center was not to be a joint venture
between CATIC and McDonnell Douglas. Rather, it was to be a CATIC
facility that supported CATIC's responsibilities to the Trunkliner
Program.

Trunkliner Program
Media reports indicated in July 1994 that McDonnell Douglas and
the PRC were engaged in negotiations over the number of Trunkliner
aircraft to be assembled in
the PRC.42

Notes from a June 7, 1994 briefing that McDonnell Douglas
provided to U.S. Government officials regarding its license applications
indicate that McDonnell Douglas's representatives made references
to the fact that the company was negotiating with the PRC over
changing the mix of aircraft to be built in the PRC.43 CATIC
was to remain responsible for the fabrication of large numbers
of parts both for the aircraft that would be assembled in the
PRC, and for the aircraft that were to be built in the United
States under an "offset" agreement.

When queried by DOD officials regarding the continued PRC need
for the machine tools in light of possible changes to the Trunkliner
program, McDonnell Douglas responded in an August 8, 1994 letter
to Defense Technology Security Administration Acting Director
Sullivan. The letter provided further explanation regarding CATIC's
proposed use of the machine tools. A subsequent August 12, 1994
McDonnell Douglas letter to the Defense Technology Security Administration's
Colonel Henry Wurster noted:

. . . The PRC factories that are participating in the Trunk
Aircraft Program . . .do not have the capability individually,
nor collectively, to accomplish the work share the PRC has agreed
to (75 percent of the airframe) . . . If the licenses are denied,
the PRC would purchase these types of machines somewhere else
. . .

The Commerce Department's
Actions in April 1995
As part of the licensing conditions for the machine tools, the
machines tools were to be stored in one location pending completion
of the Beijing machining center, and McDonnell Douglas was required
to ". . . notify the [U.S. Government] of the location of
the machine tools and update the [U.S. Government] with any changes
of location prior to plant completion."

In April 4, 1995 letters to the Commerce Department's Office
of Export Enforcement, Washington Field Office, and to the Technical
Information Support Division/Office of Exporter Services, McDonnell
Douglas reported that the machine tools were located at four
different places:

· Nine of
the machine tools were located at two sites in the port city
of Tianjin, a two hour drive from Beijing

· Four other
machine tools had yet to be exported and were located at Monitor
Aerospace Corporation in Amityville, New York

· Six machine
tools were reported to be at the Nanchang Aircraft Company 44

According to the letters, a McDonnell Douglas employee had
physically observed the machine tools in Tianjin, and confirmed
that they remained in their original crates. He had not personally
viewed the machine tools at the Nanchang Aircraft Company. However,
the McDonnell Douglas letters reported that:

. . . CATIC did provide the attached letter to substantiate
the list of equipment stored there. CATIC stated that the equipment
has not been unpacked and remains in the original crates. [Emphasis
in original]

The April 4 McDonnell Douglas letters did not trigger any
kind of investigative response.

On April 20, 1995, an interagency meeting was held in which
two McDonnell Douglas officials discussed the status and locations
of the machine tools. The McDonnell Douglas officials reported
that there had been changes in the number of aircraft that would
be built jointly with the PRC, and changes in the location of
the machine tools.

Since the machine
tools were not stored in one authorized location, this violated
the licensing conditions. McDonnell Douglas representatives
responded by stating that the machine tools had inadvertently
been moved to more than one location contrary to what had been
specified in the export licenses, but that the building for the
machine tools had not been completed and the tools had to be
stored somewhere in the interim.

Six months later the Office of Export Enforcement received
additional information from Commerce Department Licensing Officer
Christiansen that, in conjunction with a formal request from
the Defense Technology Security Administration, finally triggered
the opening of a formal investigation into the diversion.

The Commerce Department's
Actions in October 1995
An October 5, 1995 e-mail from Christiansen to a number of Commerce
Department officials, including Office of Export Enforcement
Acting Director Mark Menefee, reported that one of the six machine
tools in storage at the Nanchang Aircraft Company had been uncrated,
and was in the final stages of assembly.

In clear violation
of the export license, the machine tool - a hydraulic stretch
press - had been installed in a building that apparently
had been built specifically to accommodate that piece of equipment.

In his e-mail message, Christiansen stated:

For OEE [the Office of Export Enforcement], please investigate
to determine who was responsible for both the diversion of the
equipment originally and second who is responsible for the decision
to install the equipment at Nanchang.

The formal request from the Defense Technology Security Administration
for an investigation consisted of an October 4, 1995 letter from
its Director of Technology Security Operations.45 The Defense
Technology Security Administration informed the Acting Director
of the Office of Export Enforcement, Mark Menefee, that:

During last week's ACEP [Advisory Committee for Export
Policy] meeting a package of materials were handed out concerning
the violation of McDonnell Douglas's export license to the Chinese.

The facts of the case are that CATIC has intentionally
misused the export licenses to put controlled technology at a
facility not authorized to receive [it].

This facility as confirmed by the Chinese is involved in
the manufacture of both missiles and attack aircraft. I will
be forwarding a copy of those materials to you separately.

We believe that this is a very serious matter and that
the Office of Export Enforcement should conduct a serious investigation
into this matter . . .

The Office of Export Enforcement determined that an active
investigation was warranted, and opened a case file in early
November 1995. The case was forwarded to the Office of Export
Enforcement's Los Angeles Field Office for investigation because
McDonnell Douglas Aircraft in Long Beach, California - the exporter
of record for the machine tools - was located in the Los Angeles
Field Office's area of responsibility.

Allegation that the Commerce
Department
Discouraged the Los Angeles Field Office's Investigation
On June 7, 1998, the CBS program "60 Minutes" suggested
that the Commerce Department or other U.S. Government entities
were not necessarily interested in a complete and thorough investigation
of the machine tool diversion. Among other things, the program
included a brief appearance by Marc Reardon, a former Los Angeles
Field Office special agent, who had initially been assigned to
investigate the case. According to the official CBS transcript
of the program:

[CBS journalist Steve] KROFT: (Voiceover)
And there's still some debate over just how hard the Commerce
Department tried to find out who the bad guys really were. It
took them six months to open an investigation. And Marc Reardon,
the Commerce Department case agent assigned to investigate,
says higher ups in Washington didn't seem anxious to
get to the bottom of things.

Did you feel like you were getting support from the department?

Mr. Marc REARDON: No. Not at all.

. . . .

KROFT: (voiceover) Reardon, who is now an
investigator with the Food and Drug Administration, says he was
told who to interview and what questions he could and couldn't
ask.

Has that ever happened before?

Mr. REARDON: Not in my career.

KROFT: What did you make of it?

Mr. REARDON: That somebody didn't really
want the
truth coming out.46

The Select Committee
conducted an investigation of these allegations. However,
the Justice Department has requested that the Select Committee
not disclose the details of its investigation to protect the
Justice Department's prosecution of CATIC and McDonnell Douglas.

On February 5, 1996 U.S. News and World Report reported that
the machine tools had been diverted, and that an investigation
was underway. The Commerce Department received inquiries from
then-Chairman Alfonse M. D'Amato of the Senate Committee on Banking,
Housing and Urban Affairs, and from Chairman Benjamin A. Gilman
of the House Committee on International Relations, concerning
these reported allegations.47 Subsequently, Chairman Floyd D.
Spence of the House Committee on National Security and Representative
Frank Wolf asked the General Accounting Office to review the
facts and circumstances relating to the licensing and export
of the machine tools. The results of the General Accounting Office
review are summarized earlier in this chapter.48

The February 5, 1996 U.S. News and World Report also claimed
that "a confidential U.S. Commerce Department investigative
report" had been obtained and used in the article. Concerned
that the disclosure of such a report to U.S. News and World Report
may have violated the confidentiality provisions of Section 12
(c) of the Export Administration Act, the Office of Export Enforcement
initiated an internal inquiry. Responsibility for the disclosure
was never determined.

The Office of Export Enforcement's
Los Angeles Field Office's
Request for a Temporary Denial Order Against CATIC
Under the provisions of Part 766.24 of the Export Administration
Regulations (EAR), the Assistant Secretary for Export Enforcement
is authorized to issue a Temporary Denial Order (TDO):

. . . upon a showing by [the Bureau of Export Enforcement]
that the order is necessary in the public interest to prevent
an imminent violation of the [Export Administration Act], the
[Export Administration Regulations], or any order, license
or authorization issued thereunder.49

In late November 1995, the Los Angeles Field Office requested
that the Commerce Department issue a TDO against CATIC.50 The
TDO request was prepared as a means to compel CATIC to comply
with the terms of the machine tool export licenses by preventing
the approval of future export licenses.

The Commerce Department
declined to issue the TDO. In a December 7, 1995 memorandum,
the Office of Export Enforcement Headquarters returned the TDO
case report because it contained a number of technical deficiencies,
including:

· Did not
include licensing determination for each commodity that was exported.
Licensing determinations were necessary elements of proof that
the commodities required a license to be exported.

· Did not
include any documentary evidence such as shipping and export
control documents to confirm that the exports had occurred.

· Did not
include a schedule of violations that described the specific
violations that allegedly had occurred.

· Did not
use the proper form and format that Office of Export Enforcement
regulations specified in the Office's Special Agent Manual.

Headquarters, noted, however, that "the violations do
appear to be deliberate and substantial." It instructed
the Los Angeles Field Office to give the investigation a high
priority. Moreover, it instructed them to conduct additional
interviews and to obtain relevant documentation.

The Los Angeles Field Office was concerned that Headquarters
was using those technical deficiencies as a bureaucratic rationale
for not seeking Commerce Department approval of the TDO request.

At the date of the Select Committee's Final Report (January
3, 1999), the Office of Export Enforcement and the U.S. Customs
Service reportedly are continuing to investigate the machine
tool diversion under the direction of the U.S. Attorney for the
District of Columbia.

The
PRC's Diversion of the Machine Tools

CATIC Letter Suggests Trunkliner
Program at Risk
In a September 30, 1993 letter to McDonnell Douglas Aircraft
Company President Robert Hood, CATIC Vice President Tang Xiaoping
expressed concerns that negotiations were at an impasse for CATIC's
purchase of the machine tools and other equipment.51 The letter
seemed to suggest that the Trunkliner Program would be at risk
if a deal could not be worked out. According to the letter:

. . . I think for sure, whether or not this procurement
project will be successful shall have a big influence on the
trunk liner programme [sic] and long term cooperation between
[Aviation Industries Corporation of China] and [McDonnell Douglas].
. .

McDonnell Douglas characterized Tang Xiaoping's letter as
nothing more than a negotiating ploy to try to get McDonnell
Douglas to lower the price that it was asking for the machine
tools. McDonnell Douglas officials said they did not consider
the letter to be a veiled threat by CATIC to cancel or alter
the Trunkliner Program if a deal for the machine tool equipment
could not be worked out.

According to the Defense Department, however, CATIC had a
longstanding, productive relationship with McDonnell Douglas,
had made major investments in the Trunkliner Program, and was
not going to jeopardize those investments and the Trunkliner
Program in a dispute over the price of used machine tools.

Indeed, the purchase price that was eventually agreed to between
McDonnell Douglas and CATIC was acceptable to both parties. The
value of the machine tools was based upon an appraisal provided
by a commercial auctioneer. McDonnell Douglas added a 20-30 percent
markup. CATIC acquired all of the machine tools it had originally
sought, as well as various other tools, equipment, furniture
and other items as part of the $5.4 million purchase agreement.

The machine tools and other equipment purchased by CATIC were
excess to McDonnell Douglas's needs. According to McDonnell Douglas,
the more modern machine tools and equipment from the Columbus,
Ohio plant were not sold to CATIC but were redistributed to other
McDonnell Douglas facilities.

According to the March 1, 1994 appraisal, the value of 31
machine tools sold to CATIC - including the 19 machine tools
that required export licenses - was $3.5 million.52 This appraisal
did not assess the value of other tools, equipment, and furnishings
that were included as part of the purchase agreement.

CATIC's Efforts to Create
the Beijing
Machining Center with Monitor Aerospace
Doug Monitto was the President of Monitor Aerospace Corporation,
an Amityville, New York-based company that manufactured aircraft
components. In the fall of 1993, Monitto met with CATIC representatives
in the PRC to discuss joint venture opportunities.

During those discussions, CATIC expressed an interest in subcontracting
with Monitor Aerospace for the production of aircraft parts.
Specifically, Monitor would assist the PRC in the production
of certain aircraft parts that CATIC was to manufacture for Boeing
as part of an offset contract.

Monitto says he proposed that CATIC convince Boeing to transfer
$10 million of the offset work directly to Monitor for one year.
During that year, Monitor Aerospace would assist CATIC in designing
and laying out a new machining center.53
Thereafter, CATIC itself, with Monitor's assistance, could provide
all subsequent manufacturing for the Boeing parts.

Representatives of CATIC, Aviation Industries of China, and
Monitto signed a Memorandum of Understanding (MOU) regarding
the machining center joint venture on January 24, 1994.54 CATIC
officials took Monitto to an industrial park in Beijing where
the machining center was to be built.

In a letter dated January 27, 1994, CATIC informed Boeing
that it had signed the joint venture MOU, and asked if Boeing
would consider providing Monitor Aerospace with the offset work.55
However, Boeing, in an April 1994 letter, declined CATIC's offer.56

In the spring of 1994, Monitto says CATIC officials again
approached him about a machining center joint venture.

Although negotiations
were intermittent, Monitto says CATIC informed him in the summer
of 1994 that it had purchased machine tools from McDonnell Douglas.
As Monitto recalls, CATIC officials asked for his assistance
in reassembling the machine tools, and placing them in a machining
center. However, he says the precise location of the machining
center had not been determined at that time.57

As a result of your visit we have prepared an alternative
approach that will help us achieve our mutually desired goal
of building a "State of the Art" profile milling machine
shop in China.

Monitor Aerospace would like to offer its assistance to
CATIC in entering this new marketplace as both a partner and
as a technical expert in the field.

The most significant feature of this new approach would
be the fact that Monitor would also be the launch customer of
the new joint venture.58

Additional discussions between CATIC and Monitor Aerospace
regarding establishing the machining center appear to have continued
into the fall of 1994, after the export licenses for the McDonnell
Douglas machine tools had been approved.

According to a September 23, 1994 letter to CATIC's Sun Deqing,
Monitto proposed that, as part of a joint venture to manufacture
aircraft parts in the PRC, CATIC would:

. . . supply an appropriate building located in the Beijing-Tianjin
metropolitan area which permits growth. CATIC will provide other
necessary infrastructure and planning support, including arranging
for appropriate utility hook-ups, tax concessions, customs clearance,
etc.59

Sometime in the
fall of 1994, Monitto recalls that CATIC informed him that it
intended to place the McDonnell Douglas machine tools at a facility
located in the city of Shijiazhuang. Monitto drove to the
facility to check out the offer but decided the location was
too far from his base of operations in Beijing to be viable.
It was "not something I wanted to do," Monitto comments.60

According to Monitto, he has had no further substantive discussions
with CATIC regarding the establishment of a machining facility,
although he does remain in contact with CATIC on other business-related
matters. According to Monitto, McDonnell Douglas was never a
party to any of his negotiations with CATIC regarding the establishment
of the machining center.61

According to McDonnell Douglas, the first indication it had
that CATIC would not establish the machining center took place
during a phone call with a CATIC official in May 1995. Subsequently,
in a letter dated July 5, 1995, CATIC Supply Vice President Zhang
Jianli formally advised McDonnell Douglas that an agreement could
not be reached with Monitor Aerospace for a machining center,
and that Nanchang Aircraft Factory was interested in purchasing
the six machine tools that were stored at that factory.

According to the letter:

You were aware that we planned to set up a joint venture
with Monitor Aerospace, which would be the enduser [sic] in applying
[for] the license. Unfortunately both sides couldn't reach agreement.
Without this agreement we muse [sic] find other uses or purchasers
in China. 62

According to McDonnell Douglas, it believed that CATIC was
serious in its plans to build a machining center in Beijing to
produce airplane parts for the Trunkliner Program.

McDonnell Douglas acknowledges, however, that it never asked
for, nor was it shown, architectural drawings, floor plans, or
other information to indicate that plans for the facility were
progressing.

Diversion
of the Machine Tools to Nanchang Aircraft Company

When the machine tools arrived in the PRC, McDonnell Douglas
personnel discovered that nine of the machines were stored at
two different locations in the port city of Tianjin.63

Moreover, a March 27, 1995 letter from Zhang Jianli, the Vice
President of CATIC Supply Company, to McDonnell Douglas's Beijing
office explained that six more of the machine tools had been
shipped to Nanchang for storage. These machine tools, CATIC represented,
remained in their crates.64

Two McDonnell Douglas
representatives visited Nanchang to inspect the tools on August
23, 1995 and learned that one of the machine tools - a hydraulic
stretch press - had been uncrated and was situated inside a building.
Moreover, the building had been built specifically to accommodate
that piece of equipment.

Although electrical power had not yet been connected,65 the
size of the building and the manner of its construction suggested
to them that this facility had been custom built to house McDonnell
Douglas equipment, and had been planned for several years:

· Possibly
as early as December 23, 1993, when CATIC and McDonnell Douglas
signed an agreement for the purchase of machine tools and other
equipment from McDonnell Douglas's Columbus, Ohio plant

· Perhaps
even as early as late 1992, when CATIC first expressed interest
in the purchase

CATIC (USA) documents66 indicate that an official of "TAL
Industries" was primarily responsible for supervising the
PRC team that coordinated and supervised the packing and crating
of the machine tools and other equipment at the Columbus, Ohio
plant.67 According to its responses to a series of Select Committee
interrogatories, TAL Industries is a subsidiary of CATIC Supply
in the PRC. CATIC Supply, in turn, is a wholly-owned subsidiary
of CATIC.68 According to TAL Industries, CATIC Supply owns 90
percent of its stock, and CATIC (USA) owns the remaining 10 percent.69
TAL Industries is located at the same El Monte, California address
and has the same telephone number as CATIC (USA).70

Some of the McDonnell
Douglas equipment had been sold or given by CATIC to the Nanchang
Aircraft Company. At least some of these transfers of ownership
must have occurred before any of the equipment was exported from
the United States. In addition, the PRC team that coordinated
the disassembly and packing of the equipment at the Columbus,
Ohio plant included representatives from the Nanchang Aircraft
Company, who apparently were responsible for overseeing the packing
of the equipment it was obtaining from CATIC.

Separately, the Nanchang Aircraft Company's Technology Improvement
Office submitted inquiries to CATIC concerning the location of
various pieces of its-Nanchang's-equipment.

Since most of the Columbus, Ohio equipment that was purchased
by CATIC did not require an export license,71 CATIC's subsequent
sale of that equipment to Nanchang Aircraft Company would not
violate U.S. export controls.72 But the CATIC (USA) documents
pertaining to Nanchang Aircraft Company's equipment do not explicitly
identify the equipment, including the six machine tools that
were later found at the Nanchang Aircraft Factory in violation
of the export licenses.73

Nanchang
Accepts Responsibility

In a September 13, 1995 letter to McDonnell Douglas China
Program Manager Hitt, the Vice President of the Nanchang Aircraft
Company accepted full responsibility for uncrating and installing
the hydraulic stretch press in a newly constructed building.
According to the letter:

Now I would like to review the detail and apologize for
the result caused by the action we made. The following is the
reason why we put the [hydraulic stretch] press into the pit.

When we heard that the agreement had not been made between
CATIC and Monitor [Aerospace] concerning the cooperation. [sic]
We expressed our intention to CATIC that we would like to buy
some of the machines and at that time CATIC also intended to
sell to us.

But they mentioned to us for several times that the cases
can not be unpacked until the amendment of enduser [sic] is gained
from the Department of U.S. Commerce. We do not think that there
is any problem to get the permission for the second hand press,
which has not got new technology because we have the experience
that when we import the press from [a foreign manufacturer of
machine tools].

Under this guidance of the thought, we started to prepare
the fundation [sic] in order to save time.74

The letter went on to argue that, because of its size, the
hydraulic stretch press had to be uncrated in order to move it
to Nanchang from its port of entry in Shanghai. Moreover, the
stretch press had then been moved into the "pit" that
it would occupy so the new building could be built around it.
To do otherwise, the PRC letter said, would have disrupted the
construction of the new building.75

The Nanchang Aircraft Company official also apologized for
the events that had occurred, and provided assurances that no
further installation of the hydraulic stretch press would take
place at the Nanchang Aircraft Factory until permission to do
so was given by the U.S. Government.76

A July 5, 1995 letter to McDonnell Douglas China Program Manager
Hitt from CATIC Supply Vice President Zhang Jianli reflects CATIC's
knowledge that prior U.S. Government approval for the transaction
was required. According to the CATIC Supply letter:

Nanchang Aircraft Factory is very much interested in 6
sets of the equipment. We would like to sell to them if we are
allowed to do so because we understand that the licenses are
only good for the Beijing machining center as it was approved
originally.

Is it possible to request the United States Commerce department
[sic] to approve selling the machines to Nanchang Aircraft Company?
The machines are being stored there now, and they are required
not to be unpacked until we receive approval from the Department
of Commerce of the U.S.A.77 [Emphasis added]

When Hitt and a colleague visited the Nanchang Aircraft Company
on August 23, 1995, the Nanchang Aircraft Company officials informed
them that one of the machine tools delivered to Nanchang had
been placed inside a building "to protect it from the elements."

At the insistence
of McDonnell Douglas's Hitt, the PRC officials took him to the
building, where he found a hydraulic stretch press installed
in a building that appeared to have been specifically built for
it. The building had actually been built around the hydraulic
stretch press, since Hitt observed no openings or doorways that
were large enough to have allowed the machine tool to be moved
into the building from elsewhere. Parts for the machine were
strewn about the building in such a manner as to indicate that
efforts were underway to reassemble the machine and restore it
to operational condition. Although electrical power had not been
connected to operate the stretch press, trenches for the power
cables had been dug and other electrical work had been completed.

Hitt says the storage explanation he originally was given
by Nanchang officials was, without question, disingenuous.

Concerned over Hitt's expressions of anger at seeing the partially
installed stretch press, Hitt says Nanchang officials tried to
reassure him that they only intended to use the stretch press
for civilian production at the factory.

Since early 1996, the McDonnell Douglas machine tools have
been stored at Shanghai Aviation Industrial Corporation (SAIC).

Chronology
of Key Events

1992

March 28

McDonnell Douglas
and CATIC sign contract to co-produce 20 MD-82 and 20 MD-90
series commercial aircraft in the PRC.

Letter from CATIC
Executive Vice President Tang Xiaoping to McDonnell Douglas
Aircraft Company President Robert Hood suggesting that McDonnell
Douglas's failure to sell machine tools to CATIC could have a
"big influence" on Trunkliner Program.

October 13

U.S. Customs Service
agent visits Columbus, Ohio plant. Following interviews with
McDonnell Douglas officials, U.S. Customs Service agent reports
that no further investigative action is contemplated.

December 23

CATIC and McDonnell
Douglas reach agreement on sale of machine tools and other
equipment from McDonnell Douglas's Columbus, Ohio plant, and
four machine tools located at Monitor Aerospace, in Amityville,
New York. Included are 15 machine tools that require individual
validated licenses.

1994

January 24

Memorandum of Understanding
for CATIC Machining Center joint venture signed by Monitor
Aerospace, CATIC, and Aviation Industries of China.

CATIC and McDonnell Douglas sign
amended contract reducing the number of aircraft to be built
in the PRC from 40 to 20, with the remaining 20 to be built in
the United States.

November/
December

Most of Columbus, Ohio machine
tools are shipped to the PRC.

1995

February

Remaining Columbus, Ohio machine
tools are shipped to the PRC. Four machine tools still remain
at Monitor Aerospace in Amityville, New York.

March 24

McDonnell Douglas representative
inspects nine machine tools in original shipping crates at
two locations in Tianjin, a port city two hours drive from Beijing.
McDonnell Douglas's Beijing office letter to CATIC requests information
on machine tools not found in Tianjin.

March 27

CATIC letter to McDonnell Douglas's
Beijing office assures that six machine tools remain packed
and in storage in Nanchang.

April 4

McDonnell Douglas letter to the
Department of Commerce reports location of machine tools and
notes that six of the machine tools are reportedly located at
Nanchang Aircraft Company, four remain at Monitor Aerospace in
Amityville, New York, and the remainder are stored at two locations
in Tianjin.

April 20

McDonnell Douglas briefs interagency
meeting on locations of machine tools. Commerce Department
Office of Export Enforcement representative is present at meeting,
and determines that no active investigation is warranted.

Late April/
Early May

In telephone call with McDonnell
Douglas China program manager, CATIC official says no agreement
could be reached with Monitor Aerospace for creation of the machining
center. The Department of Commerce is informed.

May 15

The Department of Commerce instructs
McDonnell Douglas to arrange for the six machine tools at Nanchang
to be shipped to and consolidated with the nine machine tools
at Tianjin. The Department of Commerce informs McDonnell Douglas
that it has revoked the export licenses for the four machine
tools at Monitor Aerospace in Amityville, New York.

June 1

In a letter to CATIC, McDonnell
Douglas requests CATIC take immediate action to consolidate
all machine tools at one location in Tianjin, and informs CATIC
that the Commerce Department has cancelled the export licenses
for the four machine tools in Amityville, New York.

July 15

Letter from CATIC to McDonnell
Douglas confirms that no agreement could be reached with
Monitor Aerospace to build the machining center, and that Nanchang
Aircraft Factory was interested in purchasing six machine tools.
The letter asks McDonnell Douglas to obtain U.S. Government approval
for that transaction.

August 1

McDonnell Douglas applies for
Commerce Department licenses to allow six machine tools to
remain at the Nanchang Aircraft Factory.

August 23

During a visit to the Nanchang
Aircraft Factory, McDonnell Douglas representatives discover
the hydraulic stretch press uncrated and situated in a partially
completed custom building designed and built around it.

The remaining parts of the hydraulic
stretch press from Nanchang are reported to be at Shanghai.

PRC Targeting of U.S. Jet Engines
And Production Technology

The PRC's acquisition of aerospace and defense industrial
machine tools from U.S. and foreign sources has expanded its
manufacturing capacity and enhanced the quality of military and
civilian commodities that the PRC can produce.78

These acquisitions will support the PRC's achievement of a
key goal: the development of an aerospace industrial base that
is capable of producing components and structural assemblies
for modern manned aircraft and cruise missiles.79

To meet combat mission
requirements, modern military aircraft and cruise missiles require
advanced jet engine systems.80 The PRC does not have an indigenous
production capability for advanced jet engines. Thus, acquiring
such a capability has been a national priority for the PRC throughout
the 1990s.81 Development of new commercial and military jet engines
is also a priority. The PRC is also likely to be focused on production
of jet engines similar to those used for both commercial aircraft
and for cruise missiles.

The PRC's activities indicate that Beijing has a particular
interest in the acquisition of jet engine production technologies
and equipment from U.S. sources. Moreover, the PRC has reportedly
sought to compensate for shortfalls in its indigenous capabilities
by acquiring complete jet engines from U.S. sources.82

In the mid-1980s and early 1990s, the PRC apparently adopted
a three-track approach to acquiring U.S. equipment and technologies
in order to advance its own military jet engine capabilities:

· The diversion
of engines from commercial end uses

· Direct
purchase

· Joint ventures
for engine production

The PRC's acquisition targets suggest that it planned to acquire
several families of jet engines that could be adapted to various
military and commercial applications.83

The PRC has been particularly interested in acquiring "hot
section" technology from U.S. sources.84 The United States
is the world leader in hot section technology for turbojets and
turbofan engines. As a result, U.S. military aircraft can outlast
and outperform foreign-built military aircraft.85 In this regard,
the PRC seeks:

Technology such as materials and coatings inside the turbine
that can withstand extreme heat and associated cooling systems,
and could be used to increase power and durability of Chinese
aero-engine designs.86

In 1983, the PRC legally acquired two General Electric CFM-56
jet engines, ostensibly to analyze the engines for a potential
civil aircraft upgrade program. In the course of the export licensing
process, the Defense Department insisted on restricting the PRC's
use of the engines. Under the terms of the licensing agreement:

No technical data was to be transferred with the engines;
the Chinese were not to disassemble the engines; and finally,
if the Trident [civil aircraft] retrofit program had not begun
within 1 year of the engines' arrival, the engines were to be
repurchased by the manufacturer. In addition, the Chinese offered
to retrofit engines at a Shanghai commercial aircraft facility
where GE personnel would be able to monitor Chinese progress.87

Defense Department officials were concerned because the CFM-56
hot sections are identical to those used in the engines that
power the U.S. F-16 and B-1B military aircraft.88

The PRC later claimed that the CFM-56 engines were destroyed
in a fire.89 More likely, however, is that the PRC violated the
U.S. end-use conditions by reverse engineering part of the CFM-56
to develop a variant for use in combat aircraft.90

Despite the suspected
reverse engineering of the two General Electric jet engines
that were exported in 1983, G.E. reportedly signed a contract
in March 1991 with the Shenyang Aero-Engine Corporation for the
manufacture of parts for CFM-56 engines.91 According to one source,
Shenyang "put in place quality and advanced manufacturing
systems to meet US airworthiness standards." 92

The PRC aggressively attempted to illegally acquire General
Electric's F404 engine, which powers the U.S. F-18 fighter.93
The PRC likely intended to use the F404 jet engine in its F-8
fighter.94 The PRC succeeded in acquiring some F404 technology
through an indirect route by purchasing the LM-2500, a commercial
General Electric gas turbine containing the F404 hot section.95

In addition, G.E. has reportedly proposed a joint venture
with the PRC to manufacture the so-called CFM-56-Lite. The engine
could power the PRC's planned AE-100 transport.96

The PRC also has targeted large engines for aerospace and
non-aerospace applications. The PRC's acquisition plans reportedly
include Pratt & Whitney JT-8 series engines and technology
to support its large aircraft projects, as well as marine derivatives
of the G.E. LM-2500 for naval turbine propulsion projects.97
Regarding the JT-8 series:

In August 1986, CATIC licensed the technology for the U.S.
Pratt and Whitney FT8 gas turbine engine, including joint development,
production and international marketing rights. The FT8 is a development
of the JT8D-219 aero-engine (used to power Boeing 727, Boeing
737, and MD-82 aircraft), and can produce 24,000 kW (33,000 hp).
[It] represented another significant technical leap for China's
gas turbine capability . . . Chinese students were also sponsored
by Pratt and Whitney for graduate level aerospace training in
the United States.98

The PRC's efforts to acquire compact jet engines can be traced
to 1965, when the Beijing Institute of Aeronautics and Astronautics
launched a project to copy the U.S. Teledyne-Ryan CAE J69-T-41A
(depicted at right).99

The Teledyne engine
powered the U.S. Air Force AQM-34N Firebee reconnaissance drone,
a number of which were shot down over the PRC during the Vietnam
conflict.100 The PRC's copy of the U.S. turbojet, dubbed
WP-11, began ground testing in 1971 and currently powers the
PLA's HY-4 "Sadsack," a short-range anti-ship cruise
missile.101

The PRC began work on cruise missile engines in the 1980s.
The PRC's interest in developing long-range cruise missiles increased
dramatically after the 1991 Persian Gulf War, when the performance
of U.S. Tomahawk cruise missiles demonstrated the effectiveness
of precision missile strikes using conventional warheads. However,
technical challenges slowed Beijing's efforts. For this reason,
the PRC has attempted to acquire foreign-built engines for technical
exploitation. If the PRC succeeds in building cruise missile
propulsion and guidance systems, then it would probably not have
difficulty marketing cruise missiles to third world countries.102

In
1990, the PRC attempted to advance its cruise missile program
by purchasing the Williams FJ44 civil jet engine (depicted at
right).103 This compact turbofan was derived from the engine
that powers the U.S. Tomahawk cruise missile (shown below).

The FJ44 engine might have been immensely valuable to the
PRC for technical exploitation and even direct cruise missile
applications.104 But the PRC's effort to acquire FJ44 engines
was rebuffed.105

CASE STUDY: Garrett Engines

The redundancy inherent in the PRC's three-track approach
to advancing its military jet engine capabilities - diversion
of engines from commercial use, direct purchase, and joint ventures
- began to bear fruit in the early 1990s.106

The Cold War's end and a liberalization of Cold War-era export
controls on dual-use products and technologies opened new opportunities
for the PRC to acquire advanced jet engines and production capabilities.
A notable opportunity developed in 1991 when, as part of an overall
liberalization of export controls by the Coordinating Committee
for Multilateral Export Controls (COCOM), the Commerce Department
decontrolled a popular jet engine manufactured by Allied Signal's
Garrett Engine Division.

Prior to 1991, the Garrett engine required an individual validated
license that included restrictive conditions.

The Commerce Department's
decision that Garrett jet engines were decontrolled ensured that
they could be exported to the PRC without a license or U.S.
Government review. The decision also opened the way for a jet
engine co-production arrangement sought by the PRC.

Negotiations for a co-production deal between Allied Signal
and PRC officials progressed until July 1992, when the Defense
Department learned of the plan.107 The Defense Department's reaction
to the news sparked an interagency review of the Commerce Department's
decision to decontrol the Garrett engines.

The co-production deal was terminated after the review demonstrated
the potential national security implications of transferring
jet engine production capabilities to the PRC.108

PRC
Targeting of Garrett Engines

The PRC's reported motivation for initiating the Garrett engine
purchase was the PRC's requirement for a reliable, high-performance
Western engine for its developmental K-8 military aircraft.109

The K-8, depicted below, is a multi-role aircraft that can
serve as a trainer, fighter, or light ground attack bomber.110
The K-8 project was initiated by the PRC around 1987, and later
became a joint effort with Pakistan.

PRC aerospace organizations involved in the project included:

· China National
Aero-Technology Import-Export Corporation (CATIC)

· China Nanchang
Aircraft Manufacturing Company

· China National
South Aero-Engine and Machinery Company111

The PRC's access to the Garrett TFE-731 (depicted below) may
have influenced its choice of small jet engines in general, and
K-8 propulsion in particular. The PLA purchased a fleet of Learjets
from the U.S. on the understanding that the aircraft would be
for civil use. It is suspected, however, that the PLA diverted
both the aircraft and the engines for military purposes, including
PLA reconnaissance missions.112

U.S.
Government Approval of the Initial Garrett Engine Exports

In August 1989, Allied Signal applied for an export license
to sell a variant of the TFE-731, the TFE-731-2A-2A, to the PRC.
Four engines and spare parts were to be shipped.113 The U.S.
Federal Aviation Administration (FAA) had certified the TFE-731-2A-2A
as a "civil" engine.114

According to Iain S. Baird, then-Deputy Assistant Secretary
of Commerce for Export Administration, the Commerce Department
had licensing authority for the civil engine regardless of its
military (i.e., the PLA's K-8 military aircraft) application.115

The 1989 application for the export of the Garrett engines
to the PRC raised concerns among officials at the Defense Technology
Security Administration, which was the focal point for export
policy guidance and license reviews within the Defense Department.116

A Defense Technology Security Administration technical analysis,
for instance, indicated that the TFE-731-2A-2A had "some
design and manufacturing technical data common to the TFE1042
and TFE1082," both of which are combat aircraft engines.117

Given this Defense Department judgment, a condition was placed
by the Commerce Department on the export license for the TFE-731-2A-2As:

"There is to be no transfer of engine design or
manufacturing technical data provided with this transaction."
[Emphasis added]118

The case was also reviewed by COCOM. Subsequently, the Commerce
Department issued an Individual Validated License (number D032648)
for the Garrett engines on May 30, 1990.119

In December 1990, Allied Signal asked the Commerce Department
for approval to sell an additional 15 of the TFE-731-2A-2A engines
to the PRC.120

These engines were
reportedly to be used for the first production run of the PLA's
K-8 military aircraft, which were to be sold to Pakistan.
The Defense Department and COCOM again reviewed the license application,
and Defense requested conditions that would forbid the release
of TFE-731-2A-2A "design methodology, hot section repair/overhaul
procedures and manufacturing information." 121

On June 12, 1991, the Commerce Department granted Individual
Validated License D130990, which included the Defense Department's
recommended
conditions.122

Commerce
Department Decontrol of the Garrett Jet Engines

In August 1991, Allied Signal requested that the FAA re-certify
the TFE-731-2A-2A engine with a digital electronic engine controller.123
The FAA had certified the engine in 1988 with an analog engine
controller.124

It is unclear from the available information whether the PRC
requested this upgrade of the engine to include the digital electronic
engine controller, or whether Allied Signal decided to upgrade
the engine on its own initiative.125

On September 1, 1991, the Commerce Department published revisions
to the Export Administration Regulations to reflect liberalized
export controls that had been agreed to by the United States
and its COCOM partners.126 The revised regulations decontrolled
many jet engines, but continued to control exports of engines
equipped with full authority digital engine control (FADEC) systems.127

These militarily-sensitive systems control jet engine operations
to permit, among other things, maximum propulsion performance
for manned and unmanned military air vehicles.128

According to Defense
Department records, Allied Signal sent a one-page document to
the Commerce Department on September 30, 1991 representing
that the TFE-731-2A-2A did not use a FADEC system, but instead
used a less capable digital electronic engine controller (DEEC).
For this reason, Allied Signal officials believed the TFE-731-2A-2A
was completely decontrolled under the revised Export Administration
Regulations and COCOM controls.129

Technical experts at the Defense Technical Security Agency
had already presented their analysis to Commerce Department officials,
countering that the TFE-731-2A-2A contained a FADEC and therefore
remained controlled under COCOM and U.S. regulations.130

On October 1, 1991, one day after receiving the Allied Signal
document regarding the FADEC issue, the Commerce Department ruled
that the TFE-731-2A-2A did not contain a FADEC. The Commerce
Department then informed Allied Signal's Garrett Engine Division
that it could export TFE-731-2A-2A jet engines to the PRC under
a General License (a so-called G-DEST license) pursuant to the
Export Administration Regulations, as long as production technology
was not transferred.131

Defense Department records indicate that officials at the
Defense Technology Security Administration concurred with the
Commerce Department decision to permit this export, but mistakenly
believed it was still under an Individual Validated License arrangement
- that is, with the requested Defense Department conditions.132

Subsequently, the Commerce Department amended the October
1, 1991 decision and notified Allied Signal on November 25, 1991
that it had decontrolled the TFE-731-2A-2A entirely.133

Engine production
technology could now be exported to the PRC without a license.134
According to Defense Department records, Commerce Department
officials relied exclusively on Allied Signal's September 30,
1991 representation concerning the engine controller for the
TFE-731-2A-2A - that is, that the controller was not a FADEC,
and thus was no longer controlled.135

Bruce C. Webb, then a senior analyst at the Commerce Department's
Office of Nuclear Controls, recalls that a U.S. Government advisory
group had reviewed the Allied Signal document and agreed with
the company's assertion that the TFE-731-2A-2A was not equipped
with an embargoed FADEC.136 However, in response to document
requests by the Select Committee, the Commerce Department was
unable to provide any records of any technical reviews that it
may have conducted.137

The
Interagency Review of the
Proposed Export of Garrett Engines

Iain Baird, then-Deputy Assistant Secretary of Commerce for
Export Administration, claims that the Commerce Department coordinated
with appropriate agencies before making the General License determination
in November 1991. However, the Commerce Department was unable
to provide the Select Committee with any documentary evidence
to this effect.138

A Defense Technology
Security Administration staff member suggests that other agencies
learned of the decision by chance, or "dumb luck."
139 In addition, according to a December 29, 1992 Defense
Department memorandum for the record:

Commerce approved, with DoD and CoCom concurrence, the
sale of 15 Garrett TFE-731-2A-2A engines to the PRC for incorporation
into military trainers being exported to Pakistan.

In July 1992 DTSA [the Defense Technology Security Administration]
learned from cable traffic that the PRC and Garrett were negotiating
an arrangement to coproduce this engine in China for use in PLA
military trainers.

We learned shortly thereafter that Department of Commerce
had determined in November 1991 that the engine did not require
an Individual Validated License (IVL) for shipment to the PRC.

Department of Commerce, without consulting with Department
of Defense, classified the engine and technology decontrolled
(or "G-DEST") under the CoCom Core List implemented
on 1 September 1991.

After receiving a copy of the July 1992 cable, the Defense
Technology Security Administration initiated an interagency review
of the Commerce Department General License decision regarding
the Garrett engines.141 The Commerce Department agreed to suspend
its decision pending the outcome of the review.

Officials at the Defense Technology Security Administration
reportedly were especially concerned over any transfer of jet
engine production technology to the PRC. They were also surprised
that the Commerce Department opted not to coordinate its decision,
given the agency's oft-repeated concerns over any transfer of
jet engine production technology to the PRC.142

The Commerce Department's decision to decontrol Garrett engine
technology was considered in the context of several U.S. policies.
Two policies in particular dominated the interagency debate:
the 1991 Enhanced Proliferation Control Initiative (EPCI), and
COCOM controls on jet engine technologies.

The Enhanced Proliferation Control Initiative was established
by the Bush administration to provide a non-proliferation "safety
net." It was intended to restrict the export of technologies
usable for chemical and biological weapons or missiles, regardless
of whether such technologies were controlled under existing international
agreements (for example, under the 1987 Missile Technology Control
Regime).

As explained by the Commerce Department:

Foreign policy controls are being imposed on certain exports
by adopting a policy of denial for items that already require
a validated license, for any reason other than short supply,
where the export is determined to be for a facility involved
in the development, production, stockpiling, delivery, or use
of chemical or biological weapons or of missiles.

The purpose of these controls is to prevent American contribution
to, and thereby distance the United States from, the proliferation
of chemical and biological weapons and missile development.

These controls serve to demonstrate U.S. opposition to
the spread of these weapons and provide specific regulatory authority
to control exports from the United States of commodities or technology
where there is a significant risk that they will be used for
these purposes. [Emphasis added]143

According to the
August 1991 interim Enhanced Proliferation Control Initiative
regulations, the Commerce Department should have conducted a
"case-by-case" review of Allied Signal's proposed
export to determine whether it "would make a material contribution
to the proliferation of missiles." If the export were "deemed
to make such a contribution, the license [would] be denied."
144

Baird states that an Enhanced Proliferation Control Initiative
review was not conducted for the engines, but was conducted for
the production technology: "As far as the engines went,
sending the whole engine up, we didn't feel it raised EPCI concerns.
As far as the technology went, we did." Baird did not further
explain the basis for the Commerce Department decision that the
Garrett engines themselves did not require an Enhanced Proliferation
Control Initiative review; nor did he explain why the technology
did raise EPCI concerns.145

The Department of Commerce was unable to provide the Select
Committee with any records of the Enhanced Proliferation Control
Initiative review it conducted for the Garrett engine production
technology.146

A 1992 U.S. Government review of these proposed end users
found that the export of Garrett engine production technology
to the PRC could pose a national security threat to the United
States.

The review found that PRC co-production of Garrett TFE-731-2
engines would enable Beijing to develop higher quality turbojet
and turbofan engines for use in military and civilian aircraft
and in cruise missiles. PRC access to this production process
would also give Beijing the means to extend the range of its
cruise missiles. This was of special concern because PLA missiles,
rockets, and aircraft are produced at facilities also used for
civilian production.

A Garrett representative confirmed that the Zhuzhou South
Motive Power and Machinery Complex was the intended producer
of the Garrett TFE-731-2 engine. There was concern that a flow-through
of applicable production technologies to the PRC's cruise missile
engine program was almost inevitable.147

The PLA's HY-4 cruise
missile is reportedly now powered by a copy of a U.S. turbojet
engine.148 In addition, the conditions placed on the export
of the Garrett engine technology of course would not prevent
the PRC from reverse engineering the engine if that were the
PRC's intent.149

Each of the PRC participants in the Garrett engine co-production
venture produces military hardware. Despite the assurances of
Allied Signal that the engines it proposed to produce in the
PRC would be used entirely for commercial purposes, PLA personnel
were prominent in the negotiations with Garrett. The CATIC representatives
were the same individuals who were prominent in the Committee
on Foreign Investment in the United States (CFIUS) case involving
the attempted purchase of MAMCO, a Boeing contractor, by CATIC.
This is the only CFIUS case in which the President reversed a
sale on national security grounds.150

Because the PRC could incorporate complete TFE-731-2A-2A engines
or modified variants directly into cruise missile airframes,
export to the PRC of the engines themselves - as well as the
production technology - presented a national security threat.151

When Allied Signal's Garrett Engine Division upgraded the
TFE-731-2A-2A with the addition of a digital engine controller,
it claimed that the new system did not require an export license
under the revised Export Administration Regulations and COCOM
controls. It was determined that COCOM had not developed an agreed-upon
technical definition to distinguish restricted from unrestricted
engine controllers.152 This shortfall in the regime set the stage
for an extended interagency debate over the status of the TFE-731-2A-2A
vis-à-vis COCOM regulations.

The Defense Department
believed the Garrett engines contained an embargoed, full authority
digital engine control (FADEC) system. Moreover, the Defense
Department obtained new information about improvements to the
Garrett TFE-731-2A-2A that raised additional national security
concerns.153

The Garrett engine contains what [Allied Signal] calls
a Digital Electronic Engine Control (DEEC) but describes in company
literature as "full-authority, automatic engine control."
DTSA maintains that the DEEC is a FADEC for the following reasons:

FAA certification officials state in writing that the "DEEC"
controller is a FADEC. Also DoD experts at the Air Force Aeronautical
Systems Center and the Naval Air Warfare Center have assessed
that the Garrett engine controller is a FADEC.154

Additional confirmation of these findings was contained in
a technical paper developed by the engineering staff at the Defense
Technology Security Administration:

In summary, the entire DoD Category 9 [aero-engines] negotiating
team to COCOM during 1990-91 . . . are in agreement after detailed
analysis, with assistance from experts in controls from Navy,
Air Force and FAA, of data proprietary to Allied-Signal and otherwise,
that the ASCA [Allied Signal Controls & Accessories division]
DEEC, P/N 2118002-202 is a FADEC.

The Defense Department
inquiry found further that Allied Signal initially did not provide
accurate information to the Federal Aviation Administration
during the civil certification process for the TFE-731-2A-2A:

GED [Garrett] was rebuked by FAA engineers in 1988 for
their claim that the -2A engine was a direct derivation from
a -2 engine rather than being derived from a TFE731-3. GED subsequently
provided FAA with a corrected derivation showing that the engine
was actually a TFE731-3 with TFE-731-3B parts and components
rather than TFE731-2 components.

Substantial improvement to the TFE731-2A engine occurred
when the so-called "Extended Life Turbine Modifications"
were added during December, 1991, only one month after DOC [Commerce]
had notified GED it had decontrolled the engine.

The Extended Life Turbine (ELT) resulted from the NASA
program to obtain significant reductions in noise and emission
levels, i.e., decreased infrared (IR) signature. The ELT has
an enhanced damage tolerance and changes TFE731-series engines
from an expected life of approximately 6,000 hours to 10,000
hours.

In summary, the engine GED [Garrett] submitted for a 'paper
certification' as a TFE731-2A in 1988 was not a derivative of
a -2 engine but was derived from a TFE731-3 with a TFE731-3B
LP compressor. The changes noted above were included in the 1988
engine, i.e., the A5 seal and both LP compressor and turbine
blades changed. The ELT was added in 1991.

In conjunction with the slight derating of the engine in
1988, life expectancy of this engine is greatly enhanced over
a TFE731-3 turbofan engine; it is more durable, reliable, and
generally more appropriate for use on military aircraft.

No applications of this engine to civil airframes are known
to have been attempted by Allied-Signal, only military.155 [Emphasis
added]

The evidence obtained by the Defense Department indicated
that the TFE-731-2A-2A was not simply a 20-year old engine for
business jets, as Allied Signal and Commerce Department officials
had claimed.156 (Indeed, as of January 3, 1999, the TFE-731-2A-2A
has never been used in a business jet.)157

It is true that the engine had been derived from the TFE-731-3,
an engine used in both civil and military applications, including
the Cessna Citation III business jet and the CASA C-101BB ground-attack
jet. But the engine had been upgraded with a new turbine to lower
its infrared signature, thus improving the combat survivability
of the aircraft in which it would be contained - for example,
through the ability to escape detection by surface-to-air missiles.158

Resolution
of the Garrett Engine Controversy

The Garrett engine controversy was ultimately resolved through
an interagency agreement at the Deputy Assistant Secretary level.
Regarding the disputed engine controller, the Deputy Assistant
Secretary of Defense for Counterproliferation Policy, Mitchel
B. Wallerstein, described an interagency compromise in a March
21, 1994 letter to the Deputy Assistant Secretary for Export
Controls at the State Department:

Defense is prepared to agree with the Allied (and Commerce)
determination that the engine does not include a Full Authority
Digital Engine Control System (FADEC) which meets the IVL [Individual
Validated License] criteria.With respect to the 2A-2A engine,
our proposed carve out from the definition of FADEC would provide
a basis for a Commerce G-DEST classification which would allow
sales of the 2A-2A engine to the PRC, including its military,
without prior [U.S. Government] review and approval. It is unclear
whether such a definitional carve out would require multilateral
coordination with our current allies before such a G-DEST classification
is made.159

The State Department agreed with this proposal, and stated
further: "We do not believe that it is necessary to coordinate
multilaterally with our COCOM partners before moving to G-DEST
treatment." 160

Peter M. Leitner, senior trade advisor at the Defense Technology
Security Administration, believes that the "definitional
carve out" entailed a political decision to change the definition
of the engine controller in order to circumvent export regulations
and, in this case, avoid a COCOM review. According to Leitner,
"you come up with some unique definition of the item and
try to exempt or carve out coverage of that item in the regulations."
161

Baird believes that COCOM reviewed the export license application
for the upgraded variant of the Garrett TFE-731-2A-2A.162 Webb
believes COCOM did not review the application.163 The Commerce
Department was unable to provide records of any COCOM review
conducted for the upgraded Garrett engines.164

Defense Department records indicate that some U.S. government
officials believed a COCOM review of the upgraded engines was
essential. Without such a review, the United States might be
seen by its partners as attempting to "circumvent CoCom
controls." 165

Wallerstein interprets the reference to "a carve out
from the definition of FADEC" to mean that the disputed
FADEC engine controller would be removed or modified to ensure
that the TFE-731-2A-2A could be exported without controlled technology.166
However, Wallerstein does not recall seeing any technical proposal
from Allied Signal to modify the engine controller.167

The documentary
record suggests that the final, upgraded variant of the Garrett
TFE-731-2A-2A was never submitted for a review by COCOM,
which ceased operations in April 1994.168

The status of the Garrett engines vis-à-vis the Enhanced
Proliferation Control Initiative was largely resolved on August
19, 1993 during a meeting of the Commerce Department-chaired
Operating Committee on Export Policy. According to a record of
the meeting:

Commerce, State, and Defense have agreed to treat these commodities
as if they were controlled. Moreover, [Allied Signal] has agreed
not to transfer any co-production technology relating to these
engines to the PRC.169

This interagency decision was finalized and reported in the
news media in October 1995. As the Wall Street Journal reported
then:

Allied Signal already has shipped about 40 built-up engines
to China under the liberalized post-Cold War export rules, and
isn't being deterred from exporting 18 more that the Chinese
have ordered.

But when it sounded out the U.S. Commerce Department last
summer about its coproduction plan, the company was told that
if it formally applied for a license to do so the application
would be denied under the rules of the Enhanced Proliferation
Control Initiative The company decided not to apply for the license.170

Between 1992 and 1996, Allied Signal reportedly exported 59
of these TFE-731-2A-2A jet engines to the PRC. Beijing's main
interest was in acquiring a production capability for the engines;
thus, it halted further orders when co-production plans were
scuttled.171

The PRC Continues to Acquire
Jet Engine Production Processes

The PRC is continuing its effort to acquire production processes
for U.S. jet engines. For example, Pratt & Whitney Canada,
a subsidiary of Connecticut-based United Technologies, in February
1996 became "the first foreign company to establish an aviation
parts manufacturing joint venture in China (with Chengdu Engine
Company)." 172 The Chengdu Engine Company manufactures components
for, among other purposes, large jet engines used in Boeing aircraft.173
The Chengdu factory also manufactures parts for the PRC's WP13
turbojet engine, which powers the PLA's F-8 fighter.174 In 1997,
a new joint venture was reportedly proposed for Chengdu.

A consortium of Pratt and Whitney, Northrop Grumman and
Hispano-Suiza are offering a new aero-engine, the PW6000, specifically
designed to power the AE-100 transport, and are planning to establish
an aero-engine joint venture at Chengdu, Sichuan Province.175

United Technologies operates additional aviation joint ventures
with Xi'an Airfoil Technology Company and China National South
Aero-Engine and Machinery Company. These ventures are largely
comprised of manufacturing jet engine "cold section"
components or producing relatively low-technology "hot section"
components.176 United Technologies claims that it has coordinated
these aviation projects fully with the appropriate export licensing
organizations in the U.S. Government.177

Chapter 10
Technical Afterword

THE PRC'S ACQUISITION
OF MACHINE TOOS,
COMPOSITE MATERIALS, AND
COMPUTERS FOR AIRCRAFT
AND MISSILE MANUFACTURING

ince the Second World War, the aircraft industry has been among
those sectors of the manufacturing industry in the forefront
of users of advanced machine tools. Machine tool application
in the aircraft industry has been dual-use. The same types of
tools and manufacturing processes have been used for both military
and civilian aircraft, especially large transport aircraft.

Many of the same machine tools and manufacturing processes
are also used in manufacturing strategic and tactical missiles.

The requirements of the aircraft industry, although far outweighed
by those of other industries in terms of production volume, have
played an important role in helping to motivate the development
of machine tools of high precision and versatility. For example,
in the United States, some of the earliest research on numerical
control of machine tools was sponsored by the U.S. Air Force.
The work was done at MIT, with application to aircraft manufacturing
as the objective.179

The PRC, too, has
recognized the importance of machine tools in both its military
and civilian aircraft production programs, as well as in
industry generally. Particularly since the 1960s, it has embarked
on a variety of programs both to acquire machine tools from foreign
sources, and to develop an indigenous machine tool industry.

The United States has exported substantial numbers of advanced
machine tools to the PRC for aircraft co-production programs,
including the Boeing 737 and the McDonnell Douglas MD-80, under
end-use agreements and controls. (Prior to the 1960s, before
the ideological break with the Soviet Union, the PRC relied to
a considerable extent on technology transfer in the aircraft
and missile field from the Soviet Union. More recently, since
the collapse of the Soviet Union, transfer of aircraft technology
from Russia, driven by economics if not ideology, has been increasing.)

Manufacturing Processes for Aircraft Structures

Over the past 30 years, there has been increasing use made
of fiber composites of high strength-to-weight ratio, especially
in military aircraft; but metal parts remain the predominant
structural material for most aircraft, military or civilian.180

Metal parts are typically fabricated from sheet, bars (billets),
molded pieces (castings), or shaped pieces (forgings). Almost
all metal parts require, at some stage of manufacturing, processing
to their final dimensions and finish by cutting, metal removal,
shaping, or forming. This requires the use of machine tools.

Most of these machine tools are general purpose, and can be
used to process a wide variety of parts, as well as to join component
parts into subassemblies and assemblies by use of riveting, welding,
and bonding. The various types of automatic machinery used in
these joining processes may be general purpose, or may be specifically
designed or modified for the particular assembly being fabricated.

Machine tools used in aircraft manufacturing today are generally
numerically controlled (NC). The more advanced and modern
manufacturing facilities are computer-numerically controlled
(CNC). Many of today's high-tech machines also have automatic
tool changing capability. In factory layouts, these machines
are part of machining centers where they are integrated with
automated systems for materials and workpiece handling (for example,
transportable pallets that carry the workpieces).181

Another level of automation and process integration that has
been achieved in large-scale production only recently (for example,
in the Boeing 777) is the integration of computer aided design
(CAD) with computer aided manufacturing (CAM).182 With CAD/CAM,
the output of the computer design process is translated directly
into numerical computer code that can be sent directly to computer-controlled
machines and machining centers.

The next step in manufacturing process integration is computer
integrated manufacturing (CIM).183 In this step, integrated
computer controls manage the entire product flow from design
to sales to delivery, including not only CAD/CAM but also:

· Materials
ordering

· Warehousing

· Inventory
control

· Factory
scheduling

Finally, the integration is being extended to networks of
geographically scattered suppliers, creating global infrastructures
supporting international manufacturing enterprises.184

High-Tech Metal Cutting

To a considerable degree, the extent of advanced capability
of computer-numerically controlled machine tools is indicated
by the number of axes that can be controlled. (This is often
how the sophistication of these machines is described in export
control documents.)

The "number of axes" means the number of motions
of either the tool or the workpiece that can be simultaniously
controlled.185 Thus, a drilling machine in which the tool can
travel vertically, and the workpiece is held to a bed that can
travel both horizontally and laterally, is a three-axis machine.
Three-axis machines are widely used, and widely available worldwide.

A milling machine is one of the most versatile machine tools.
And when a milling machine's cutter is fixed, and the workpiece
is mounted on a pallet that can not only move vertically, horizontally,
and laterally, but also rotate about two perpendicular axes,
it becomes a five-axis milling machine. There are other combinations
of tool and pallet motions that may be advantageously embodied
in five-axis milling machines, depending on the particular applications
of those machines.

There is no fundamental difficulty in conceiving or understanding
the design and operation of these sorts of five-axis machines.
It is believed that some five-axis machines may have been manufactured
in the PRC.186 However, the design and production of five-axis
milling machines capable of maintaining the highest levels of
accuracy and control of workpiece tolerances - during high-speed
machining, over the entire range of three-dimensional motions
and rotations that the machine may trace out in machining a complex
part - calls for a high degree of capability in machine tool
and supporting technologies (for example, materials and quality
control).

It is not believed
that the PRC has yet attained that level of capability. But
such sophisticated five-axis machines have been exported from
the United States to the PRC under license, with end-use controls,
for use in co-production of commercial aircraft. In addition,
the PRC may have been able to import them from one of the several
non-U.S. countries that manufacture them.

The value of high precision multiple-axis machines in manufacturing
is that they broaden the range of design solutions available
for structural elements and for structural assemblies. In most
cases, an aircraft structural designer (or computer design program)
without such advanced machine capabilities would have to design
less optimal parts and structures. This would mean disadvantages
in terms of the extra weight of the parts and structures, and
a higher unit cost relative to what could be achieved with more
advanced machine tools.

However, in some instances, increased effort by highly skilled
craftsmen can offset the disadvantages of using less advanced
or lower-precision machine tools. In advanced industrial economies
such as the United States, the high cost of such skilled labor
almost always strongly favors investments in more advanced machinery.
In the PRC, the cost tradeoffs in favor of advanced machinery
over additional skilled labor are less.

Nevertheless, for
the PRC, the advantages of having advanced machinery for manufacturing
both modern civilian transport and military aircraft remain
sufficient to motivate continuing efforts on their part to acquire
them. In co-production arrangements with the major aircraft producers,
it is usually necessary for the PRC to be provided with the same
types of machines with which the parts being co-produced were
originally designed.

The progress in refinement of machine tools has been substantial
in recent years. For the most part, this progress is the result
of advances in control systems, and in the machines' associated
software. The mechanical components of machine tools have remained
mostly unchanged over the past decade, although there have been
a few improvements, such as higher spindle speeds. The more modest
advances in the mechanical precision and versatility of machine
tool control have complemented the rapid advances in computer-aided
design and manufacturing. In part, the improved mechanical components
themselves are the result of these vastly improved CAD/CAM capabilities;
the improved machine tool components also make it possible to
use CAD/CAM capabilities more effectively.

The following table indicates the improvements in the accuracy
and repeatability of five-axis machines over the past decade.

CHART

The current thresholds
for subjecting metal cutting machines to export controls
are, for example, positioning accuracy of 4 to 6 microns (around
0.00012 inches) and rotary accuracy, when specified, of 0.003
degrees. Milling machines with five or more axes are subject
to export controls regardless of accuracy.

In the advanced industrialized nations, machine tool accuracy
has increased across the entire spectrum of computer-numerically
controlled machine tools. For example, the latest grinding machine
tools for use in high-volume production can produce concentric
circles accurate to within five ten-thousandths of an inch. These
same machines can guarantee flatness to within 50 millionths
of an inch. They can bore holes with dimensions accurate to within
four ten-thousandths of an inch, and then repeat the process
endlessly with a variation of no more than 0.0002 inches. Today's
specialty machines have even better accuracy and repeatability
figures.

Metal Forming for Aircraft Manufacture

Sheet metal forming operations are important in aircraft manufacture.
For example, the process known as "stretch forming"
- in which a metal sheet is held at its edges, and stretched
over a form or die that can be moved - is used to manufacture
large sections of skin (up to 40 feet long) for the Boeing 757
and 767.187

Visitors to PRC aircraft manufacturing plants several years
ago noted that there seemed to be only a limited capability for
stretch forming, especially for larger, heavier workpieces.188

There are many variations of metal forming operations. In
"stretch-draw forming," a metal sheet is gripped in
tension, and then pressed by upper and lower mating dies using
hydraulic force.189 Other types include:

· Press brake
bending

· Spinning

· Deep drawing

· Rubber
forming, in which the metal sheet is forced into a rubber
medium on one side by a die on the opposite side190

· Hydraulic
stretch forming presses, used to form extruded parts to shape

One modern type
of forming operation is known as superplastic forming,191
because it takes place at a temperature above which some metals
become plastic. The titanium alloy Ti-6AL-4V, which is widely
used in aircraft parts, can be formed this way using a variety
of forming techniques.

A more complex application of superplastic forming is done
in combination with diffusion bonding.192 In this process,
two sheets are diffusion bonded at designated areas under high
temperature. The unbonded areas of one of the sheets then undergoes
superplastic forming into a die, forced by argon gas pressure.
These techniques have been extended not only to titanium alloys,
but to some aluminum alloys as well.

Superplasticity and diffusion bonding technologies for alloys
of titanium, aluminum, and certain other metals are subject to
export controls.

Non-Mechanical Manufacturing Processes

There are a number of manufacturing process to remove, shape,
and finish structural and component parts that do not rely on
cutting with solid tools. Instead, these processes use chemical,
electrical, thermal, and other methods to cut, shape, and finish
metals and other materials.

Of these methods, chemical milling193 is the most widely
used on metal aircraft and missile parts. In chemical milling,
a mask is placed over areas of a metallic workpiece where metal
is not to be removed. The metal workpiece is then placed in a
chemical bath that etches metal away from the unmasked areas.
This process is not subject to export controls, and is well within
PRC capabilities.

Electrochemical machining194 employs a negatively-charged,
shaped electrode to remove material from a positively-charged
metal workpiece in a conductive chemical fluid (electrolyte).
This process is more complex than chemical milling, and can be
used to produce complex shapes with deep cavities.

Electric discharge machining (EDM) removes electrically
conductive material by means of controlled, repeated electric
discharges.195 The chips are removed by flushing with a dielectric
fluid. When EDM is used for grinding, the workpiece is fed into
a negatively-charged rotating wheel. This type of EDM is not
subject to export controls. In another form of EDM, a moving
wire is brought to within arcing distance of the metal part being
cut in a dielectric fluid. This type of EDM is subject to export
controls. Both types of EDM are on the U.S. Militarily Critical
Control Technologies List (MCTL) if the number of rotary axes
for contour control exceeds five (for the wire type), or two
(for the nonwire type).

Laser beams are also used for cutting metals and other
materials.196 Either solid- state lasers or gas lasers may be
used for this purpose, including:

· CO2 lasers

· Ruby lasers

· Neodymium
lasers

· Neodymium-YAG
lasers

Export controls apply to laser tools, and these tools are
listed in the Missile Control Technology List (MCTL) if they
have two or more rotary axes that can be coordinated simutaneously
and have positioning accuracy better than 0.003 degrees. However,
lasers of the types and power levels useful in most material
machining applications are widely available worldwide, and to
the PRC.

High velocity water jets generated by pressures of
60,000 pounds per square inch and above are also used for cutting
materials, especially plastics and composites.197 A related process
is abrasive water-jet machining, in which abrasive particles
such as silicon carbide are added to the water to increase the
material removal rate.

Export controls apply to water-jet machine tools, and are
noted in the MCTL if they have two or more rotary axes that can
be coordinated simultaneously and have a positioning accuracy
of better than 0.003 degrees.

The Use of Computers for Machine Control

Much of the recent improvement in machine tool capabilities
is attributable to advances in the use of computers for machine
control. Moreover, further advances in machine control technology
are in the offing.

Although there is some uncertainty as to the level of PRC
technology in this area, there has been no credible evidence
that it is up to the state of the art of the highly- developed
nations (the United States, Japan, and Western Europe).

The PRC's inability to achieve state-of-the-art in computer-control
system technology for machine tools is not due to a lack of theoretical
knowledge. PRC engineers regularly attend, and present papers
at, meetings dealing with most of the frontier developments in
machine tools and their control systems.198

Rather, the PRC has been inhibited by shortcomings in its
industrial infrastructure. The PRC also lacks the ability to
integrate the contributions of the many disciplines that are
required to utilize the rapidly emerging new technologies. The
PRC system is unable to keep up with these basically new approaches.

Control system technology for machine tools is rapidly starting
to change. Among the most important changes on the horizon is
the emergence of "open architecture" control systems.
These systems use personal computers for machine control.

While PCs of sufficient
capability for the control of sophisticated machine tools are
now available in the PRC, and it is believed that motion-control
boards needed for this purpose are also generally available,
software for machine control is the other necessary element.
The PRC would need specialized software to achieve a highly
capable machine tool control system. At present, export controls
are imposed on software for machine tool control that can be
used to contour control independently and simultaneously on more
than four axes.

In addition, there are controls on software that can adaptively
use the measurement of at least one physical variable through
a computational model to change one or more machining instructions.

Capabilities to produce software for PCs are widely diffused
throughout the world, and are growing steadily in the PRC itself.
As a result, these controls on software may not be as effective
in the future, as these new trends in machine tool control develop.

An important aspect of advanced software for machine tools
is that it can be used to compensate for a machine tool's mechanical
errors, if the errors are repeated. This is done by mapping the
machine's performance against a known standard, and then compensating
for positioning errors.

As machine control systems move increasingly toward becoming
PC-based, these "open architecture" systems will make
error correction systems easier to implement, and more widely
used.

Fiber Composite Materials and Structures

Since the early 1970s, there has been a trend toward replacing
metals with fiber composites in the primary structure of aircraft.199

The main reason for the adoption of fiber composite materials
and structures is that they weigh less than metals, but provide
the same or better stiffness and strength. In addition, composite
materials and structures usually last longer (that is, they have
a greater time-to-failure under repeated or cyclic loading) than
metal parts designed for the same maximum static loads. They
also vibrate less.200

A disadvantage of composite materials and structures is that
the manufacturing processes to use them are more complicated,
and consequently they add costs. They also require more advanced
nondestructive evaluation techniques for quality control and
field maintenance. In light of these factors, the trend toward
replacing metals with composites has thus far proceeded much
more rapidly in military aircraft than in civil aircraft.

For helicopters and other vertical take-off and landing aircraft,201
however, the trend toward fiber composites began earlier and
proceeded faster. Initially, fiberglass composites were the material
of choice, even though they have much lower strength and stiffness
properties than the boron and carbon/graphite composites that
were later utilized in fixed-wing aircraft. The reason that fiberglass
composites were attractive for helicopters (and other vertical
take-off and landing aircraft) is that structural weight savings
on these aircraft have a relatively higher payoff in performance
than on fixed-wing, horizontal take-off aircraft. Moreover, the
load intensities on a helicopter's non-rotating parts tend to
be lower than on high-speed fixed wing aircraft.

Among the advantages of composite structures is that a structural
part can be designed to have different strength properties in
different directions. That is, it can be stiffer in one direction,
and more flexible in another. This permits it to be tailored
to the loading conditions of specific applications.

For this reason, fiber composite structures are especially
well adapted to the application of radar signature reduction
techniques. It should be noted that the use of composites in
and of itself is not enough to give an aircraft stealth properties;
a fiber composite structure aircraft without radar signature
reduction features will not necessarily have a lower radar cross-section
than a metal structure.202 The subject of stealth in relation
to composite construction is discussed more fully under the heading
"Stealth and Composite Techniques," later in
this Technical Afterword.

Although fiberglass composite materials have been used in
aircraft manufacturing since the early 1950s, most of the applications
of this material originally were for secondary structure not
considered critical for flight safety. (A notable exception was
the use of fiberglass/epoxy resin composites for helicopter rotor
blades - experimentally in the 1950s, and then in production
in the late 1970s.) Fiberglass/epoxy resin composites using S-glass,
although of high strength and stiffness relative to most homogeneous
plastics, did not begin to approach the strength and stiffness
of aluminum alloys, much less those of high-strength steel alloys.
But they could be used in secondary structures for their weight
and sometimes manufacturing cost advantages relative to alternatives.

A turning point
in the application of fiber composites to aircraft, rockets,
and ballistic missiles took place in the early 1960s, with
the discovery and development of the high strength and stiffness
properties of boron fibers. Single boron fibers in tension (that
is, subjected to stress in one direction) were found to be stronger
and stiffer than the best available high-strength steel alloys.

The use of a boron/epoxy resin composite then followed. It
can be used for aircraft, rocket, and ballistic missile structural
elements that are designed to take multi-directional loads, such
as are typically encountered in aircraft primary structures.
Boron-epoxy resin composites are formed and cured in autoclaves
(essentially, pressure cookers) under controlled high temperatures
and pressures, in much the same way as the earlier fiberglass/epoxy
resin composites were made. Boron-epoxy resin composites are
just as strong and stiff as aluminum and steel alloy structures,
if not better, and weigh less.

Very shortly after the introduction of boron fibers, carbon/graphite
and Kevlar fibers were introduced. Depending on the particular
application and type of loading, these offered material properties
and unit weights comparable to boron fibers, and at lower cost.203

It required some years of development, including ground and
flight testing of experimental structural components, before
boron/epoxy resin composites were first used in the primary structures
of production aircraft. Their first use was in the horizontal
tail surfaces of the Navy F-14A aircraft, in the early 1970s.
This was followed shortly by the F-15A, which used boron/epoxy
composites for both its horizontal and vertical tail surface
structures.

Since then, there has been a steadily increasing trend toward
the use of the various high-strength, high-stiffness fiber composites,
particularly graphite/epoxy, in primary structures in military
aircraft. The same trend is underway, albeit at a slower rate,
in civilian aircraft.

The progression in composite usage in primary structures has
been as follows:204 205

Chart

Composite Structure Fabrication Technologies

The manufacture of fiber composite structures generally begins
by combining the fiber with epoxy resin, or some other so-called
"matrix" material. The resulting prefabricated sheets
are called prepreg. Successive layers of these prepreg sheets
are then placed in a mold that is shaped to the form of the part
being fabricated.

The fiber directions in successive prepreg layers are diagonal
to one another, in a fashion tailored to the load and stress
field to which the part will be subjected. The stack of prefabricated
sheets - called a "layup" - is then cured in an autoclave
(essentially, a pressure cooker) under controlled high temperature
and pressure.

Initially, the task of making the layups in molds was done
by hand. Later, beginning with simple, near two-dimensional parts,
computer-controlled automated layup machines became available.
Today, automated layup machines are capable of handling ever
more complex parts.

Attachments between fiber composite structural elements have,
for the most part, been made with bolts. In some cases, adhesive
bonds have been used, in much the same manner as with metal parts.
More recently, the layups for two or more parts have been joined
in the curing process - this is called cocuring.

These fiber composite fabrication processes permit the manufacture
of parts in nearly final form ("near net shape"). However,
some cutting, drilling, and other machining and finishing operations
are usually required.

Much of this is done with conventional machine tools. But
the tool shape and hardness, and the cutting speeds, must be
adapted to the fiber composite material being worked. Laser cutting
and water jet/hydroabrasive cutting are also used extensively
in finishing operations for fiber composites.

For axially-symmetrical
parts - such as rocket motor cases - filament winding is used
(for example, in the Minuteman missile's upper stage). Filament
winding has also been used to manufacture fiberglass/epoxy helicopter
rotor blades. In addition, long parts of constant cross-section
can be made by the pultrusion process: pulling the fibers and
matrix material through a die. This is the analogue of the extrusion
process for metals.

Most of the fiber composite structures produced to date have
employed polymer matrix materials that cannot be subjected to
severe temperature environments. This has been a strict limitation
on the kinds of structures for which fiber composites can be
used. But newly-developed composite materials do not have this
limitation. These new materials include:

· Metal matrix
composites

· Ceramic
matrix composites

· Carbon/carbon
composites

These new fiber composites can be used in higher-temperature
applications such as rocket engines, hypersonic aircraft, and
ballistic missiles.206 207

The PRC has been
seeking to acquire or develop composite materials and structures
technologies. One route has been through seeking co-production
relationships for subassemblies of commercial aircraft and helicopters
that have significant composite parts.208 There are also reports
of indigenous development as well.

A wide range of composite materials and structures fabrication
equipment is included in the Missile Control Technology List
(MCTL), and is subject to export control regimes at some threshold
of capability. These include:

· Composite
filament winding

· Tape laying

· Weaving

· Prepreg

· Fiber production
equipment

The more advanced Western methods of composite structure fabrication
for complex three-dimensional shapes are extremely sophisticated
robotic machines - some with as many as nine axes of motion.
It is not believed that the PRC has been able to develop or acquire
machines of this capability as yet.

Stealth and Composite Technologies

What is stealth? Simply put, stealth is the ability to conceal
an attacker from a defender's detection and defensive systems,
and successfully accomplish the mission.209 Stealth does not
make the attacker invisible, only more difficult to detect.210
To avoid detection, it is necessary to reduce or eliminate the
attacker's "signature."

The "signature" is composed of five primary elements:

· Visual
signature

· Infrared
(heat) signature

· Acoustic
(noise) signature

· Radio transmission
signature

· Radar signature211

The first three signatures are relatively short range.212
The radar signature is the most important, because it can be
detected at the longest range - up to 400 miles away.213

In a stealth vehicle, attention is paid to all five signature
sources.214 To reduce the infrared and acoustic signatures of
an aircraft, the engines are buried inside the fuselage or wings.
Special non-reflective paints and paint schemes reduce the visual
signature. The radio transmission signature can be reduced or
eliminated by secure communications or radio silence.

Defeating radar detection is relatively simple in principle.215
It involves designing the vehicle so that the incoming radar
signal is reflected away from the defender's radar receiver,
or absorbed by the vehicle itself using radar-absorbing materials.216
Radar stealth is accomplished in five ways:

· Designing
the vehicle so that there are no surfaces pointing directly back
to the source radar

· Using radar-absorbing
materials on surfaces that could reflect back to the source radar

· Removing
surface roughness by making the surface of the vehicle as smooth
as possible

· Designing
engine inlets to reduce reflection

· Burying
engines and weapons inside the vehicle217

The F-117 and B-2 aircraft represent the cutting edge in manned
stealth aircraft, because they combine all of the elements of
design, materials, and manufacturing technology to achieve stealth,
including radar and infrared invisibility.218

Why is stealth so important to the military? Stealth vehicles
are difficult to counter by a defender.219 In military terms,
stealth insures a greater probability of completing a mission
and increased survivability of U. S. forces.220 Other benefits
include:

· The ability
to range over a greater area of enemy territory without being
detected

· Reduced
mission cost

· Increased
effectiveness of other radar-jamming systems, such as chaff221

The PRC probably cannot build stealth aircraft or missiles
with the same capabilities as the F-117 and B-2, now or in the
near future. But the PRC is likely to try to acquire most of
the key elements necessary to build them.

Even acquisition of these elements will be insufficient to
permit the PRC to build effectively stealthy aircraft or missiles.
System integration of stealth is a major additional task facing
the PRC.

The PRC's Acquisition of Stealth Design Technology

The PRC's efforts to solve the stealth design problem received
a major boost when the PRC was able to import both high performance
computers, and software packages known generically as "finite
element" software. This software is used to assess aerodynamic
forces and stresses on three-dimensional structures.

"Finite element" software also has the capacity
to solve complex sets of Maxwell's equations. These equations
relate to electromagnetic radiation (that is, radar) around a
structure.

With high performance computers and "finite element"
software, the PRC now has the capability to design aircraft which
are aerodynamically feasible and then evaluate their stealth
capabilities, too.

The Department of Defense has sought tighter export controls
on "finite element" software.222 This software is distinctly
dual-use, with civilian applications including automobiles, off-shore
oil drilling platforms, and the design of nuclear reactor plants.
One of the main concerns of the Defense Department, however,
is its use in stealth applications. The software is also critical
for anti-submarine warfare.223

The PRC's Acquisition
Of Composite Materials Technology

Building composite structures for aircraft is, in some ways,
similar to building a fiberglass boat: the rigid fiberglass is
technically a composite material, made up of layers of fiberglass
fabric and epoxy resin. In composite structures for aircraft,
the fabric is woven from ceramic, polymer, or carbon/carbon materials,
instead of fiberglass.224

Large rolls of the fabric are run through machines that apply
a coating of uncured resin to the fabric (known as prepreging
the fabric). This material bonds together, forming the composite
structure.

In stealth aircraft structures, radar-absorbing layers and
coatings are integrated into the composite structure.

Some PRC joint ventures
are adding to the PRC's ability to produce composite airframes:

· British
Petroleum America proposed to sell to the PRC proprietary technology
for resins and reinforcing materials, as well as the technology
and training to operate a facility.225 The company also planned
to sell the methodology for translating manufacturing requirements
into optimized semi-finished materials. BP America specifically
sold the PRC technical data for hot-melt prepreg formulations,226
and for an acrylonitrile plant.227 The prepreg technical data
was sold to the AVIC China Helicopter Corporation.228

· Hexcel
was willing to supply the PRC with high-temperature curing resins
and the production equipment and training to apply the resin
to fabric materials.229 Specifically, Hexcel planned to give
the PRC the technology for 250 F and 350 F epoxies.230 The company
planned to transfer to the joint venture a solution-impregnation
coating tower for fabrics, and hot-melt impregnating equipment
for tapes.231 The joint venture was supported by exports of carbon
epoxy prepreg to the Chengdu Aircraft Industry Corporation232
and the Xian Aircraft Company.233 In addition, Hexcel was going
to transfer Boeing Aircraft Company's specifications for advanced
composites,234 graphite,235 Kevlar,236 and conductive fabrics.237

Kevlar is used to make high-strength smooth surfaces on stealth
aircraft. The graphite and conductive fabrics are used for radar-absorbent
surfaces of stealth aircraft. In addition to their uses for stealth
technology, the growing importance of composite structures in
all aircraft construction provides an incentive to the PRC to
acquire this technology even for non-stealth aircraft - military
and civilian.

Obtaining the design capability and the materials-production
capability were still not sufficient for the PRC to build aircraft
with composite structures. The missing element of the Chinese
puzzle was the ability to manufacture aircraft parts with consistent
performance time after time.

The answer to this question was found in a joint venture with
the Sikorsky Aircraft Company.238

The Sikorsky Aircraft Company joint venture with the PRC proposed
to build the composite tail section of the civil S-92 helicopter.239
Sikorsky would teach the PRC to design and fabricate the tail
section using proprietary technology to meet Federal Aviation
Agency standards of quality and performance.

The project included teaching the PRC to fabricate aircraft
components using carbon fiber materials (which are also used
in stealth aircraft).240 In addition to showing the PRC how to
use the materials, Sikorsky also taught the PRC about:

· Bag molding

· Mold releases

· Die manufacturing241

The key requirements the PRC expected to obtain from the venture
were precision tooling, repeatability, and a high production
rate.242

Overall Assessment

The PRC acquisition of composite technology is an interesting
case study. It indicates a broad-based set of joint-venture initiatives
directed toward providing for the PRC a state-of-the-art composite
materials/aerospace structure capability.